UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-21793
| Name of Fund: |
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BlackRock Enhanced Government Fund, Inc. (EGF) |
| Fund Address: |
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100 Bellevue Parkway, Wilmington, DE 19809 |
Name and address of agent for
service: John M. Perlowski, Chief Executive Officer, BlackRock Enhanced Government Fund, Inc., 50 Hudson Yards, New York, NY 10001
Registrant’s telephone number, including area code: (800) 882-0052, Option 4
Date of fiscal year end: 12/31/2024
Date of reporting period: 12/31/2024
Item 1 – Reports to Stockholders
(a) The Reports to Shareholders are attached herewith.
December 31, 2024
BlackRock Enhanced Government Fund, Inc. (EGF) |
Not FDIC Insured • May Lose Value • No Bank Guarantee |
Supplemental Information (unaudited)
Section 19(a) Notices
BlackRock Enhanced Government Fund, Inc.’s (EGF) (the "Fund") amounts and sources of distributions reported are estimates and are being provided
pursuant to regulatory requirements and are not being provided for tax reporting purposes. The actual amounts and sources for tax reporting purposes will
depend upon the Fund’s investment experience during its fiscal year and may be subject to changes based on tax regulations. The Fund will
provide a Form 1099-DIV each calendar year that will tell you how to report these distributions for U.S. federal income tax purposes.
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Total Cumulative Distributions
for the Fiscal Period |
% Breakdown of the Total Cumulative
Distributions for the Fiscal Period |
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Net Realized
Capital Gains
Short-Term |
Net Realized
Capital Gains
Long-Term |
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Net Realized
Capital Gains
Short-Term |
Net Realized
Capital Gains
Long-Term |
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The Fund estimates that it has distributed more than its net income and net realized
capital gains; therefore, a portion of the distribution may be a return of capital. A return of capital may occur, for example, when some or all of the shareholder’s investment in the Fund is returned to the shareholder. A return of capital does not necessarily reflect
the Fund’s investment performance and should not be confused with
“yield” or “income.” When distributions exceed total return performance, the difference will reduce the Fund’s net asset value per share. |
Section 19(a) notices for the Fund, as applicable, are available on the BlackRock
website at blackrock.com.
Managed Distribution Plan
The Fund, with the approval of its Board of Directors (the
“Board”), has adopted a managed distribution plan, consistent with its investment objectives and policies, to support a level distribution of
income, capital gains and/or return of capital (the “Plan”). In accordance with the Plan, the Fund currently distributes a fixed amount of $0.041000 per share on
a monthly basis.
The fixed amount distributed
per share is subject to change at the discretion of the Fund’s Board. The Fund is currently
not relying on any exemptive relief from Section 19(b) of the Investment Company Act of 1940, as amended (the “1940 Act”). Under its Plan, the Fund
will distribute all available investment income to its shareholders as required by the Internal Revenue Code of 1986, as amended (the “Code”). If
sufficient income (inclusive of net investment income and short-term capital gains) is not earned on a monthly basis, the Fund will distribute long-term
capital gains and/or return of capital to shareholders in order to maintain a level distribution. Each monthly distribution to shareholders is expected to be
at the fixed amount established by the Board; however, the Fund may make additional distributions from time to time, including additional capital gain distributions at the
end of the taxable year, if required to meet requirements imposed by the Code and/or the 1940 Act.
Shareholders should not draw any conclusions about the Fund’s investment performance from the amount of these distributions or from the terms of the Plan. The
Fund’s total
return performance is presented in its financial highlights table.
The Board may amend, suspend or terminate the
Fund’s Plan at any time without prior notice to the Fund’s shareholders if it deems such actions to be in the best interests of the Fund or its shareholders. The suspension or termination of the Plan could have the effect of creating a trading discount (if the Fund’s stock is trading at or above net asset value) or widening an existing trading discount. The Fund is subject to risks that could have an adverse impact on its ability to maintain level distributions. Examples of
potential risks include, but are not limited to, economic downturns impacting the markets, changes in interest rates, decreased market volatility, companies
suspending or decreasing corporate dividend distributions and changes in the Code.
2 2024 BlackRock
Annual Report to Shareholders
The Benefits and Risks
of Leveraging
The Fund may utilize leverage to seek
to enhance the distribution rate on, and net asset value (“NAV”) of, its common shares (“Common Shares”). However, there is no guarantee that these
objectives can be achieved in all interest rate environments.
In general, the concept of leveraging is based on the premise that the financing cost of leverage, which is based on short-term interest rates, is normally lower than the
income earned by the Fund on its longer-term portfolio investments purchased with the proceeds from leverage. To the extent that the total assets of the Fund
(including the assets obtained from leverage) are invested in higher-yielding portfolio investments, the Fund’s shareholders benefit from the incremental net income. The interest earned on securities purchased with the proceeds from leverage (after paying the leverage costs) is paid to shareholders in the form of dividends, and the value of these portfolio
holdings (less the leverage liability) is reflected in the per share NAV.
To illustrate these concepts, assume the Fund’s capitalization is $100 million and it utilizes leverage for an additional $30
million, creating a total value of $130 million available for investment in longer-term income securities. If prevailing short-term interest rates are 3% and
longer-term interest rates are 6%, the yield curve has a strongly positive slope. In this case, the Fund’s financing costs on the $30 million of proceeds
obtained from leverage are based on the lower short-term interest rates. At the same time, the securities purchased by the Fund with the proceeds from leverage
earn income based on longer-term interest rates. In this case, the Fund’s financing cost of leverage is significantly lower than the income earned on the
Fund’s longer-term investments acquired from such leverage proceeds, and therefore the holders of Common Shares (“Common Shareholders”) are the
beneficiaries of the incremental net income.
However, in order to benefit shareholders, the return on assets purchased with leverage proceeds must exceed the ongoing costs associated
with the leverage. If interest and other costs of leverage exceed the
Fund’s return on assets purchased with leverage proceeds, income to shareholders is lower
than if the Fund had not used leverage. Furthermore, the value of the
Fund’s portfolio investments generally varies inversely with the direction of long-term
interest rates, although other factors can influence the value of portfolio investments. In contrast, the amount of the Fund’s obligations under its leverage arrangement generally does not fluctuate in relation to interest rates.
As a result, changes in interest rates can influence the Fund’s NAV positively or negatively. Changes in the future direction of interest rates are very difficult to predict accurately, and there is no assurance that the Fund’s intended leveraging strategy will be successful.
The use of leverage also generally causes greater changes in the Fund’s NAV, market price and dividend rates than comparable
portfolios without leverage. In a declining market, leverage is likely to cause a greater decline in the NAV and market price of the Fund’s shares than
if the Fund were not leveraged. In addition, the Fund may be required to sell portfolio securities at inopportune times or at distressed values in order to
comply with regulatory requirements applicable to the use of leverage or as required by the terms of leverage instruments, which may cause the Fund to incur
losses. The use of leverage may limit the Fund’s ability to invest in certain types of securities or use certain types of hedging strategies. The Fund
incurs expenses in connection with the use of leverage, all of which are borne by shareholders and may reduce income to the shareholders. Moreover, to the
extent the calculation of the Fund’s investment advisory fees includes assets purchased with
the proceeds of leverage, the investment advisory fees payable to the Fund’s investment adviser will be higher than if the Fund did not use leverage.
The Fund may utilize leverage through reverse repurchase agreements as described in the Notes to Financial Statements, if applicable.
Under the Investment Company Act of 1940, as amended (the
“1940 Act”), the Fund is permitted to borrow money (including through the use of TOB Trusts) or issue debt securities up to 33 1/3% of its total managed assets.
The Fund may voluntarily elect to limit its leverage to less than the maximum amount permitted under the 1940 Act.
4 2024 BlackRock
Annual Report to Shareholders
Option Over-Writing
Strategy
In general, the goal of the Fund is to
provide shareholders with current income and gains. The Fund seeks to pursue this goal primarily by investing in a portfolio of U.S. Government and U.S. Agency
securities and utilizing an option over-writing strategy in an effort to generate current gains from option premiums and to enhance each Fund’s risk-adjusted return.
The Fund’s objectives cannot be achieved in all market conditions.
The Fund writes call options on individual U.S. Government and U.S. Agency securities or on baskets of such securities or on interest rate swaps (“swaptions”)
and may write call options on other debt securities. When writing (selling) a call option, the Fund grants the counterparty the right to buy an underlying
reference security or enter into a defined transaction (e.g., a swap contract, in the case of the swaption) at an agreed-upon price (“strike
price”) within an agreed upon time period. The Fund receives cash premiums from the counterparties upon writing (selling) the option or swaption, which
along with net investment income and net realized gains, if any, are generally available to support current or future distributions paid by the Fund. During
the option term, the counterparty may elect to exercise the option if the market value of the underlying reference security or underlying contract rises above
the strike price, and the Fund is obligated to sell the security or contract to the counterparty at the strike price, realizing a gain or loss. If the option remains
unexercised upon its expiration, the Fund realizes gains equal to the premiums received.
Writing call options and swaptions entails certain risks, which include but are not limited to, the following: an increase in the value of the underlying security above the
strike price can result in the exercise of a written option (sale by the Fund to the counterparty) when the Fund might not otherwise have sold the security;
exercise of the option by the counterparty may result in a sale below the current market value and in a gain or loss realized by the Fund; writing call options
and swaptions limits the potential appreciation on the underlying interest rate swap or security and the yield on the Fund could decline; if current market
interest rates fall below the strike price, the counterparty could exercise a written swaption when the Fund might not otherwise have entered into an interest
rate swap; the Fund is bound by the terms of the underlying interest rate swap agreement upon exercise of the option by the counterparty which can result in a
loss to the Fund in excess of the premium received. The premium that the Fund receives from writing a call option or swaption may not be sufficient to offset
the potential appreciation on the underlying equity security or interest rate swap above the strike price of the option that could have otherwise been realized
by the Fund. As such, an option over-writing strategy may outperform the general fixed-income market in rising or flat interest rate environments (when bond prices are steady
or falling) but underperform in a falling interest rate environment (when bond prices are rising).
The Fund intends to write call options and swaptions to varying degrees depending upon market conditions. Please refer to the Schedule of Investments and the Notes to
Financial Statements for details of written call options and swaptions.
Derivative Financial Instruments
The Fund may invest in various derivative financial instruments. These instruments are used to obtain exposure to a security, commodity, index, market, and/or other
assets without owning or taking physical custody of securities, commodities and/or other referenced assets or to manage market, equity, credit, interest rate,
foreign currency exchange rate, commodity and/or other risks. Derivative financial instruments may give rise to a form of economic leverage and involve risks,
including the imperfect correlation between the value of a derivative financial instrument and the underlying asset, possible default of the counterparty to
the transaction or illiquidity of the instrument. Pursuant to Rule 18f-4 under the 1940 Act, among other things, the Fund must either use derivative financial
instruments with embedded leverage in a limited manner or comply with an outer limit on fund leverage risk based on value-at-risk. The Fund’s successful use of a derivative financial instrument depends on the investment adviser’s ability to predict pertinent market movements accurately, which cannot be assured. The use of these instruments may result in losses greater than if they had not been used,
may limit the amount of appreciation the Fund can realize on an investment and/or may result in lower distributions paid to shareholders. The Fund’s investments in these
instruments, if any, are discussed in detail in the Notes to Financial Statements.
BlackRock Enhanced Government Fund, Inc. (EGF)
Option Over-Writing Strategy / Derivative Financial Instruments
5
Fund
Summary as of December 31, 2024
BlackRock Enhanced Government Fund, Inc. (EGF)
Investment Objective
BlackRock Enhanced Government Fund, Inc.’s (EGF) (the “Fund”) investment objective is to provide shareholders with current income and gains. The Fund seeks to
achieve its investment objective by investing primarily in a portfolio of U.S. Government securities and U.S. Government Agency securities, including U.S.
Government mortgage-backed securities, that pay interest in an attempt to generate current income, and by employing a strategy of writing (selling) call
options on individual or baskets of U.S. Government securities, U.S. Government Agency securities or other debt securities held by the Fund.
On November 21, 2024, the Fund’s Board of Directors and the Board of Directors of BlackRock Income Trust, Inc. ("BKT") approved the
reorganization of the Fund into BKT, with BKT continuing as the surviving fund. Subject to the requisite approvals by the Fund’s shareholders, the reorganization is expected to be completed in the first half of 2025.
No assurance can be given that the Fund’s investment objective will be
achieved.
Symbol on New York Stock Exchange |
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Current Distribution Rate on Closing Market Price as of December 31, 2024 ($9.71)(a) |
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Current Monthly Distribution per Common
Share(b) |
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Current Annualized Distribution per Common Share(b) |
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Current distribution rate on closing market price is calculated by dividing the current annualized distribution per share by the closing market price. The current
distribution rate may consist of income, net realized gains and/or a return of
capital. Past performance is not an indication of future results. |
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The distribution rate is not constant and is subject to change. A portion of the distribution may be deemed a return of capital or net realized gain.
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Market Price and Net Asset Value
Per Share Summary
GROWTH OF $10,000 INVESTMENT
(a)
Represents the Fund’s closing market price on the NYSE and reflects the reinvestment of dividends and/or distributions at actual reinvestment prices.
(b)
An unmanaged index that tracks the performance of U.S. dollar-denominated bonds issued in the U.S. investment-grade bond market. The index includes U.S. Treasury, government sponsored, and collateralized securities and provides a reliable representation of the U.S. investment-grade bond market. Effective June 30, 2024, the Fund changed its primary reporting benchmark from ICE BofA 1-10 Year U.S Treasury Index to FTSE Government/Mortgage Index. The investment adviser believes FTSE Government/Mortgage Index is a more appropriate reporting benchmark for the Fund.
(c)
An index that is a subset of ICE BofA U.S. Treasury Index including all securities with a remaining term to final maturity less than 10 years. ICE BofA U.S. Treasury Index tracks the
performance of US dollar denominated sovereign debt publicly issued by the U.S. government in its domestic market.
6 2024 BlackRock
Annual Report to Shareholders
Fund
Summary as of December 31,
2024(continued)
BlackRock Enhanced Government Fund, Inc. (EGF)
Performance
Returns for the period ended December 31, 2024 were as follows:
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Average Annual Total Returns |
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Fund at Market Price(a)(b) |
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FTSE Government/Mortgage Index |
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ICE BofA 1-10 Year U.S. Treasury Index |
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All returns reflect reinvestment of dividends and/or distributions at actual reinvestment prices. Performance results reflect the Fund’s use of leverage, if
any. |
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The Fund’s discount to NAV narrowed during the period, which accounts for the difference between performance based on market price and performance based on NAV.
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Performance results may include adjustments made for financial reporting purposes
in accordance with U.S. generally accepted accounting principles.
Past performance is not an indication of future results.
The Fund is presenting the performance of one or more indices for
informational purposes only. The Fund is actively managed and does not
seek to track or replicate the performance of any index. The index performance shown is not intended to be indicative of the Fund’s investment
strategies, portfolio components or past or future performance.
More information about the Fund’s historical performance can be found in the “Closed End Funds” section of blackrock.com.
The following discussion relates to the Fund’s absolute
performance based on NAV:
What factors
influenced performance?
Performance is reviewed on an absolute basis due to
the Fund’s unique strategy, which entails writing call options on individual or baskets of U.S. government securities or interest rates. The index returns listed above
are for reference purposes only, as these indices do not reflect an option writing strategy.
The Fund’s exposure to agency mortgage-backed securities (“MBS”), collateralized loan obligations (“CLOs”), non-agency MBS, U.S. Treasuries
and international sovereign bonds contributed positively to performance during the period.
There were no significant detractors from absolute performance, although the use of
interest rate derivatives detracted marginally.
The Fund utilized derivatives during the period including interest rate swaptions as a hedge against long U.S. Treasury positions and as
a means to manage duration, spread exposure and yield curve positioning. The use of swaps continues to be an efficient interest rate management tool and should
be viewed in the context of their overall contribution to risk reduction as well as performance. During the period, the use of swaps and Treasury futures detracted
slightly.
Describe recent portfolio
activity.
Over the period, the Fund purchased U.S. Treasury securities and
used swaptions and U.S. Treasury futures to generate incremental yield. During periods of reduced interest rate volatility, the Fund increased exposure to both
agency and non-agency MBS. Conversely, when volatility increased the Fund reduced this exposure, trading tactically. The Fund increased its allocation to CLOs over the
period.
Describe portfolio positioning at period
end.
At period end, the Fund continued to utilize its options writing strategy as a way to
manage duration and generate incremental yield.
The views expressed reflect the
opinions of BlackRock as of the date of this report and are subject to change based on changes in market, economic or other conditions.
These views are
not intended to be a forecast of future events and are no guarantee of future results.
Fund
Summary as of December 31,
2024(continued)
BlackRock Enhanced Government Fund, Inc. (EGF)
Overview of the Fund’s Total Investments
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U.S. Government Sponsored Agency Securities |
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U.S. Treasury Obligations |
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Non-Agency Mortgage-Backed Securities |
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CREDIT QUALITY ALLOCATION |
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Excludes short-term securities, short investments and options, if any. |
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For purposes of this report, credit quality ratings shown above reflect the highest rating assigned by either S&P Global Ratings or Moody’s Investors Service,
Inc. if ratings differ. These rating agencies are independent, nationally
recognized statistical rating organizations and are widely used. Investment grade ratings are credit ratings of BBB/Baa or higher. Below investment grade ratings are credit ratings of BB/Ba or lower. Investments designated N/R are not rated by either rating agency. Unrated investments do not necessarily indicate low
credit quality. Credit quality ratings are subject to change.
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The investment adviser evaluates the credit quality of unrated investments based upon certain factors including, but not limited to, credit ratings for similar
investments and financial analysis of sectors, individual investments and/or
issuers. Using this approach, the investment adviser has deemed unrated U.S. Government Sponsored Agency Securities and U.S. Treasury Obligations to be of similar credit quality as investments rated AAA/Aaa. |
8
2024 BlackRock Annual Report to Shareholders
Schedule of Investments
December 31, 2024
BlackRock Enhanced Government Fund, Inc. (EGF)
(Percentages shown are based on Net Assets)
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Apidos CLO XXIV, Series 2016-24A, Class A1AL, (3-mo.
CME Term SOFR + 1.21%), 5.83%, 10/20/30(a)(b) |
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Cedar Funding XV CLO Ltd., Series 2022-15A, Class B, (3- mo. CME Term SOFR + 1.80%), 6.42%,
04/20/35(a)(b) |
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Dryden CLO Ltd., Series 2017-53A, Class B, (3-mo. CME
Term SOFR + 1.66%), 6.32%, 01/15/31(a)(b) |
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OCP CLO Ltd., Series 2019-17A, Class BR2, (3-mo. CME Term SOFR + 1.75%), 6.37%,
07/20/37(a)(b) |
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Palmer Square CLO Ltd., Series 2014-1A, Class A1R2, (3-
mo. CME Term SOFR + 1.39%), 6.04%, 01/17/31(a)(b) |
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Securitized Asset-Backed Receivables LLC Trust, Series 2005-OP1, Class M2, (1 mo. Term SOFR + 0.79%), 5.13%, 01/25/35(a) |
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SMB Private Education Loan Trust, Series 2021-A, Class B,
2.31%, 01/15/53(b) |
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Southwick Park CLO LLC, Series 2019-4A, Class A1R, (3- mo. CME Term SOFR + 1.32%), 5.94%,
07/20/32(a)(b) |
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Total Asset-Backed Securities — 3.9%
(Cost: $1,341,611) |
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Non-Agency Mortgage-Backed Securities |
Collateralized Mortgage Obligations — 8.5% |
Bank of America Mortgage Trust, Series 2003-J, Class 2A1, 5.82%, 11/25/33(a) |
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Bravo Residential Funding Trust, Series 2021-NQM1,
Class A1, 0.94%, 02/25/49(a)(b) |
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Chase Home Lending Mortgage Trust, Series 2019-ATR1, Class A12, 6.50%, 04/25/49(a)(b)
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COLT Mortgage Loan Trust(b) |
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Series 2022-1, Class A1, 4.55%,
04/25/67(a) |
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Series 2022-2, Class A1, 2.99%, 02/25/67 |
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Series 2022-7, Class A1, 5.16%, 04/25/67 |
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CSMC, Series 2022-ATH1, Class A1A, 2.87%, 01/25/67(a)(b) |
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Ellington Financial Mortgage Trust, Series 2022-1, Class A1, 2.21%, 01/25/67(a)(b) |
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Flagstar Mortgage Trust, Series 2021-4, Class A1, 2.50%,
06/01/51(a)(b) |
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GS Mortgage-Backed Securities Corp. Trust, Series 2022- PJ2, Class A4, 2.50%,
06/25/52(a)(b) |
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GS Mortgage-Backed Securities Trust, Series 2021-PJ2,
Class A2, 2.50%, 11/25/51(a)(b) |
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Homes Trust, Series 2024-NQM2, Class A1, 5.72%, 10/25/69(b) |
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JP Morgan Mortgage Trust(a)(b) |
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Series 2022-DSC1, Class A1, 4.75%, 01/25/63 |
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Series 2022-INV3, Class A3B, 3.00%, 09/25/52 |
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Mello Mortgage Capital Acceptance, Series 2022-INV2, Class A3, 3.00%, 04/25/52(a)(b)
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Series 2020-NQM1, Class A1, 2.48%, 03/25/65 |
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Series 2021-NQM1, Class M1, 2.31%, 04/25/65 |
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OBX Trust, Series 2022-INC3, Class A1, 3.00%, 02/25/52(a)(b) |
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PMT Loan Trust, Series 2024-INV1, Class A3, 5.50%,
10/25/59(a)(b) |
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Provident Funding Mortgage Trust, Series 2024-1, Class A1, 5.50%, 12/25/54(a)(b) |
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RCKT Mortgage Trust, Series 2022-2, Class A1, 3.00%,
02/25/52(a)(b) |
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Collateralized Mortgage Obligations (continued) |
Sequoia Mortgage Trust, Series 2024-INV1, Class A3, 5.50%,
10/25/54(a)(b) |
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STAR Trust, Series 2021-1, Class M1, 2.36%, 05/25/65(a)(b) |
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TRK Trust, Series 2021-INV2, Class A1, 1.97%,
11/25/56(a)(b) |
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Verus Securitization Trust(b)
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Series 2022-1, Class A1, 2.72%, 01/25/67 |
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Series 2022-3, Class A1, 4.13%, 02/25/67 |
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Series 2022-7, Class A1, 5.15%, 07/25/67 |
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Series 2024-6, Class A1, 5.80%, 07/25/69 |
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Interest Only Collateralized Mortgage Obligations — 0.0% |
CitiMortgage Alternative Loan Trust, Series 2007-A5,
Class 1A7, 6.00%, 05/25/37 |
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Total Non-Agency Mortgage-Backed Securities — 8.5%
(Cost: $3,226,375) |
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U.S. Government Sponsored Agency Securities |
Agency Obligations — 2.8% |
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Federal Farm Credit Banks Funding Corp. |
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Federal Home Loan Banks, 1.61%, 01/27/33 |
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Collateralized Mortgage Obligations — 9.7% |
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Series 2017-90, Class WB, 3.00%, 11/25/47 |
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Series 2020-79, Class JA, 1.50%, 11/25/50 |
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Series 2022-25, Class KL, 4.00%, 05/25/52 |
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Series 2022-31, Class BZ, 4.00%, 10/25/51 |
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Series 2023-56, Class FA, (30-day Avg SOFR + 1.40%), 5.97%, 11/25/53(a) |
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Series 4398, Class ZX, 4.00%, 09/15/54 |
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Series 4921, Class NL, 3.00%, 10/25/49 |
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Series 5230, Class DL, 3.50%, 09/25/44 |
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Commercial Mortgage-Backed Securities — 0.0% |
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Ginnie Mae, Series 2006-30, Class IO, 2.79%, 05/16/46(a) |
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Interest Only Collateralized Mortgage Obligations — 0.1% |
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Fannie Mae REMICS, Series 2012-47, Class NI, 4.50%,
04/25/42 |
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Ginnie Mae, Series 2009-116, Class KS, (1 mo. Term SOFR + 6.36%), 1.96%, 12/16/39(a)
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Mortgage-Backed Securities — 44.8% |
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Freddie Mac Mortgage-Backed Securities |
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Ginnie Mae Mortgage-Backed Securities, 5.00%, 11/15/35 |
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Uniform Mortgage-Backed Securities |
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4.00%, 09/01/33 - 01/14/55(c) |
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5.00%, 11/01/33 - 11/01/45 |
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3.50%, 02/01/35 - 04/01/53 |
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5.50%, 03/01/35 - 04/01/53 |
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6.00%, 02/01/36 - 03/01/38 |
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Schedule of Investments
9
Schedule of Investments (continued)
December 31, 2024
BlackRock Enhanced Government Fund, Inc. (EGF)
(Percentages shown are based on Net Assets)
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Mortgage-Backed Securities (continued) |
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Uniform Mortgage-Backed Securities (continued) |
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4.50%, 04/01/39 - 02/01/46 |
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|
|
3.00%, 03/01/43 - 07/01/52 |
|
|
|
6.50%, 09/01/53 - 10/01/53 |
|
|
|
| |
|
|
|
Total U.S. Government Sponsored Agency Securities — 57.4%
(Cost: $21,931,694) |
|
U.S. Treasury Obligations |
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
4.13%, 10/31/26 - 03/31/29 |
|
|
|
4.25%, 11/30/26 - 06/30/31 |
|
|
|
| |
|
|
|
4.00%, 01/31/29 - 02/15/34 |
|
|
|
| |
|
|
|
| |
|
|
|
Total U.S. Treasury Obligations — 27.5%
(Cost: $9,797,334) |
|
Total Long-Term Investments — 97.3%
(Cost: $36,297,014) |
|
| |
|
|
|
| |
Money Market Funds — 1.2% |
|
BlackRock Liquidity Funds, T-Fund, Institutional Shares, 4.36%(d)(e) |
|
|
|
| |
|
|
|
U.S. Treasury Obligations — 2.4% |
|
U.S. Treasury Bills, 4.36%, 03/20/25(f) |
|
|
|
Total Short-Term Securities — 3.6%
(Cost: $1,279,209) |
|
Total Investments Before Options Written — 100.9%
(Cost: $37,576,223) |
|
Options Written — (0.3)%
(Premiums Received: $(116,000)) |
|
Total Investments, Net of Options Written — 100.6%
(Cost: $37,460,223) |
|
Liabilities in Excess of Other Assets — (0.6)% |
|
| |
|
| |
Variable rate security. Interest rate resets periodically. The rate shown is the effective
interest rate as of period end. Security description also includes the reference rate and
spread if published and available. |
| |
Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933,
as amended. These securities may be resold in transactions exempt from registration to
qualified institutional investors. |
| |
Represents or includes a TBA transaction. |
| |
|
| |
Annualized 7-day yield as of period end. |
| |
Rates are discount rates or a range of discount rates as of period end. |
Investments in issuers considered to be affiliate(s) of the Fund during the year ended December 31, 2024 for purposes of Section 2(a)(3) of the Investment Company Act of
1940, as amended, were as follows:
| |
|
|
|
|
Change in
Unrealized
Appreciation
(Depreciation) |
|
|
|
Capital Gain
Distributions
from
Underlying
Funds |
BlackRock Liquidity Funds, T-Fund, Institutional Shares |
|
|
|
|
|
|
|
|
|
| |
Represents net amount purchased (sold). |
Derivative Financial Instruments Outstanding as of Period
End
| |
|
|
|
Value/
Unrealized
Appreciation
(Depreciation) |
| |
|
|
|
|
10-Year U.S. Ultra Long Treasury Note |
|
|
|
|
| |
|
|
|
|
10 2024 BlackRock
Annual Report to Shareholders
Schedule of Investments (continued)
December 31, 2024
BlackRock Enhanced Government Fund, Inc. (EGF)
Futures Contracts (continued)
| |
|
|
|
Value/ Unrealized Appreciation (Depreciation) |
Long Contracts (continued) |
|
|
|
|
2-Year U.S. Treasury Note |
|
|
|
|
5-Year U.S. Treasury Note |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
10-Year U.S. Treasury Note |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
OTC Interest Rate Swaptions
Written
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
10-Year Interest Rate Swap, 02/01/35 |
|
|
|
|
Goldman Sachs International |
|
|
|
|
|
2-Year Interest Rate Swap, 02/01/27 |
|
|
|
|
Goldman Sachs International |
|
|
|
|
|
30-Year Interest Rate Swap, 02/01/55 |
|
|
|
|
Goldman Sachs International |
|
|
|
|
|
5-Year Interest Rate Swap, 02/01/30 |
|
|
|
|
Goldman Sachs International |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Balances Reported in the Statement of Assets and Liabilities for Options
Written
Derivative Financial Instruments Categorized by Risk
Exposure
As of period end, the fair values of derivative
financial instruments located in the Statement of Assets and Liabilities were as follows:
| |
|
|
|
Foreign
Currency
Exchange
Contracts |
|
|
|
Assets — Derivative Financial Instruments |
|
|
|
|
|
|
|
Futures contracts
Unrealized appreciation on futures
contracts(a) |
|
|
|
|
|
|
|
Liabilities — Derivative Financial Instruments |
|
|
|
|
|
|
|
Futures contracts
Unrealized depreciation on futures
contracts(a) |
|
|
|
|
|
|
|
Options written
Options written at value |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
Net cumulative unrealized appreciation (depreciation) on futures contracts and centrally cleared swaps, if any, are reported in the Schedule of Investments. In the
Statement of Assets and Liabilities, only current day’s variation
margin is reported in receivables or payables and the net cumulative unrealized appreciation (depreciation) is included in accumulated earnings (loss). |
Schedule of Investments
11
Schedule of Investments (continued)
December 31, 2024
BlackRock Enhanced Government Fund, Inc. (EGF)
For the period ended
December 31, 2024, the effect of derivative financial instruments in the Statement of Operations was as follows:
| |
|
|
|
Foreign
Currency
Exchange
Contracts |
|
|
|
Net Realized Gain (Loss) from: |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Net Change in Unrealized Appreciation (Depreciation) on: |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Average Quarterly Balances of
Outstanding Derivative Financial Instruments
| |
|
Average notional value of contracts — long |
|
Average notional value of contracts — short |
|
| |
|
Average notional value of swaption contracts written |
|
| |
|
Average notional value — sell protection |
|
| |
|
Average notional value — pays fixed rate |
|
| |
Derivative financial instrument not held at any quarter-end. The risk exposure table serves as an
indicator of activity during the period. |
For more information about the Fund’s investment risks regarding derivative financial instruments, refer to the Notes to Financial
Statements.
Derivative Financial Instruments
— Offsetting as of Period End
The Fund’s derivative
assets and liabilities (by type) were as follows:
| |
|
|
Derivative Financial Instruments |
|
|
| |
|
|
| |
|
|
Total derivative assets and liabilities in the Statement of Assets and Liabilities |
|
|
Derivatives not subject to a Master Netting Agreement or similar agreement (“MNA”) |
|
|
Total derivative assets and liabilities subject to an MNA |
|
|
The following table presents the Fund’s derivative liabilities by
counterparty net of amounts available for offset under an MNA and net of the related collateral pledged by the Fund:
| |
Derivative
Liabilities
Subject to
an MNA by
Counterparty |
Derivatives
Available
for Offset |
Non-Cash
Collateral
Pledged(a)
|
Cash
Collateral
Pledged(a)
|
Net Amount
of Derivative
Liabilities(b)
|
Goldman Sachs International |
|
|
|
|
|
| |
Excess of collateral received/pledged, if any, from the individual counterparty is not shown for financial reporting purposes. |
| |
Net amount represents the net amount payable due to the counterparty in the event of default. Net amount may be offset further by the options written
receivable/payable on the Statement of Assets and Liabilities.
|
12
2024 BlackRock Annual Report to Shareholders
Schedule of Investments (continued)
December 31, 2024
BlackRock Enhanced Government Fund, Inc. (EGF)
Fair Value Hierarchy as of Period End
Various inputs are used in determining the fair value of
financial instruments at the measurement date. For a description of the input levels and information about the Fund’s policy regarding valuation of financial
instruments, refer to the Notes to Financial Statements.
The following table summarizes the Fund’s financial instruments categorized in the fair value hierarchy. The breakdown of the Fund’s financial instruments into major categories is disclosed in the Schedule of Investments above.
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
Non-Agency Mortgage-Backed Securities |
|
|
|
|
U.S. Government Sponsored Agency Securities |
|
|
|
|
U.S. Treasury Obligations |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
U.S. Treasury Obligations |
|
|
|
|
| |
|
|
|
|
Derivative Financial Instruments(a)
|
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
| |
Derivative financial instruments are futures contracts and options written. Futures contracts are valued at the unrealized appreciation (depreciation) on the instrument
and options written are shown at value. |
See notes to financial statements.
Schedule of Investments
13
Statement of Assets and Liabilities
December 31, 2024
| |
|
| |
|
Investments, at value —
unaffiliated(a) |
|
Investments, at value —
affiliated(b) |
|
Cash pledged for futures contracts |
|
Foreign currency, at value(c)
|
|
| |
|
| |
|
| |
|
| |
|
Variation margin on futures contracts |
|
| |
|
| |
|
| |
|
| |
|
Options written, at value(d)
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
Directors’ and Officer’s fees |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Variation margin on futures contracts |
|
| |
|
Commitments and contingent liabilities |
|
| |
|
| |
|
|
|
|
| |
|
| |
|
| |
|
(a) Investments, at cost—unaffiliated |
|
(b) Investments, at cost—affiliated |
|
(c) Foreign currency, at cost
|
|
| |
|
| |
|
|
|
|
| |
|
See notes to financial statements.
14
2024 BlackRock Annual Report to Shareholders
Statement of Operations
Year Ended December 31,
2024
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Total expenses excluding interest expense |
|
Interest expense — unaffiliated |
|
| |
|
| |
|
Fees waived and/or reimbursed by the Manager |
|
Total expenses after fees waived and/or reimbursed |
|
| |
|
REALIZED AND UNREALIZED GAIN (LOSS) |
|
Net realized gain (loss) from: |
|
Investments — unaffiliated |
|
Foreign currency transactions |
|
| |
|
| |
|
| |
|
| |
|
Net change in unrealized appreciation (depreciation) on: |
|
Investments — unaffiliated |
|
Foreign currency translations |
|
| |
|
| |
|
| |
|
| |
|
Net realized and unrealized loss |
|
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS |
|
See notes to financial statements.
Statements of Changes in Net Assets
| |
|
| |
|
|
| |
INCREASE (DECREASE) IN NET ASSETS |
|
|
| |
|
|
| |
|
|
| |
|
|
Net change in unrealized appreciation (depreciation) |
|
|
Net increase in net assets resulting from operations |
|
|
DISTRIBUTIONS TO SHAREHOLDERS(a) |
|
|
From net investment income |
|
|
| |
|
|
Decrease in net assets resulting from distributions to shareholders |
|
|
CAPITAL SHARE TRANSACTIONS |
|
|
Reinvestment of distributions |
|
|
Redemption of shares resulting from a repurchase offer(b) |
|
|
Net decrease in net assets derived from capital share transactions |
|
|
| |
|
|
Total decrease in net assets |
|
|
| |
|
|
| |
|
|
| |
Distributions for annual periods determined in accordance with U.S. federal income tax regulations. |
| |
Net of repurchase fees of $36,637 and $39,352. |
See notes to financial statements.
16
2024 BlackRock Annual Report to Shareholders
Statement of Cash Flows
Year Ended December 31,
2024
| |
|
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES |
|
Net increase in net assets resulting from operations |
|
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities: |
|
Proceeds from sales of long-term investments and principal paydowns/payups |
|
Purchases of long-term investments |
|
Net proceeds from sales of short-term securities |
|
Amortization of premium and accretion of discount on investments and other fees |
|
Premiums paid on closing options written |
|
Premiums received from options written |
|
Net realized loss on investments and options written |
|
Net unrealized appreciation on investments, options written and swaps |
|
(Increase) Decrease in Assets |
|
| |
|
| |
|
| |
|
Variation margin on futures contracts |
|
| |
|
Increase (Decrease) in Liabilities |
|
| |
|
| |
|
| |
|
| |
|
Directors’ and Officer’s fees |
|
| |
|
| |
|
| |
|
| |
|
Variation margin on futures contracts |
|
| |
|
Net cash provided by operating activities |
|
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES |
|
Cash dividends paid to shareholders |
|
Net payments on redemption of capital shares |
|
Decrease in bank overdraft |
|
Net cash used for financing activities |
|
CASH IMPACT FROM FOREIGN EXCHANGE FLUCTUATIONS |
|
Cash impact from foreign exchange fluctuations |
|
CASH AND FOREIGN CURRENCY |
|
Net decrease in restricted and unrestricted cash and foreign currency |
|
Restricted and unrestricted cash and foreign currency at beginning of year |
|
Restricted and unrestricted cash and foreign currency at end of year |
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
Cash paid during the year for interest expense |
|
NON-CASH FINANCING ACTIVITIES |
|
Reinvestment of distributions |
|
Statement of Cash Flows (continued)
Year Ended December
31, 2024
| |
|
RECONCILIATION OF RESTRICTED AND UNRESTRICTED CASH AND FOREIGN CURRENCY AT THE END OF YEAR TO THE
STATEMENT OF ASSETS AND LIABILITIES |
|
| |
|
| |
|
Foreign currency at value |
|
| |
|
See notes to financial statements.
18
2024 BlackRock Annual Report to Shareholders
Financial Highlights
(For a share outstanding throughout each period)
| |
|
| |
|
|
|
|
|
| |
Net asset value, beginning of year |
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized gain
(loss)(b) |
|
|
|
|
|
Net increase (decrease) from investment operations |
|
|
|
|
|
| |
|
|
|
|
|
From net investment income |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
Net asset value, end of year |
|
|
|
|
|
Market price, end of year |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
Ratios to Average Net
Assets(e) |
|
|
|
|
|
| |
|
|
|
|
|
Total expenses after fees waived and/or reimbursed |
|
|
|
|
|
Total expenses after fees waived and/or reimbursed and excluding interest expense |
|
|
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
Net assets, end of year (000) |
|
|
|
|
|
Borrowings outstanding, end of year (000) |
|
|
|
|
|
Portfolio turnover rate(g)
|
|
|
|
|
|
| |
Based on average shares outstanding. |
| |
Net realized and unrealized gain (loss) per share amounts include repurchase fees of $0.01 for each of the years ended December 31, 2024, 2023, 2022, 2021 and $0.03 for
the year ended December 31, 2020. |
| |
Distributions for annual periods determined in accordance with U.S. federal income tax regulations. |
| |
Total returns based on market price, which can be significantly greater or less than the net asset value, may result in substantially different returns. Where
applicable, excludes the effects of any sales charges and assumes the reinvestment
of distributions at actual reinvestment prices. |
| |
Excludes fees and expenses incurred indirectly as a result of investments in underlying funds. |
| |
Includes non-recurring expenses of reorganization costs. Without these costs, total expenses, total expenses after fees waived and/or reimbursed and total expenses
after fees waived and/or reimbursed and excluding interest expense would have
been 1.37%, 1.07% and 1.07%, respectively. |
| |
Includes mortgage dollar roll transactions (“MDRs”). Additional information regarding portfolio turnover rate is as follows: |
| |
|
|
|
|
|
| |
Portfolio turnover rate (excluding MDRs) |
|
|
|
|
|
See notes to financial statements.
Notes
to Financial Statements
BlackRock Enhanced Government Fund, Inc. (the “Fund”) is registered under the Investment Company Act of 1940, as amended (the
“1940 Act”). The Fund is registered as a diversified, closed-end management investment company. The Fund is organized as a Maryland corporation.
The Fund determines and makes available for publication the net asset value (“NAV”) of its Common Shares on a daily basis.
On November 21, 2024, the Fund’s Board of Directors (the “Board”) and the Board of Directors of BlackRock Income Trust, Inc.
(“BKT”) approved the reorganization of the Fund into BKT, with BKT continuing as the surviving fund. Subject to the requisite approvals by the
Fund’s shareholders, the reorganization is expected to be completed in the first half of 2025.
The Fund, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, is included in a
complex of funds referred to as the BlackRock Fixed-Income Complex.
2.
SIGNIFICANT ACCOUNTING POLICIES
The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America
(“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the
financial statements, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment
company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. Below is a summary of significant accounting
policies:
Investment Transactions and Income Recognition: For financial reporting purposes, investment transactions are recorded on the dates
the transactions are executed.
Realized gains and losses on investment transactions are
determined using the specific identification method. Dividend income and
capital gain distributions, if any, are recorded on the ex-dividend dates. Non-cash dividends, if any, are recorded on the ex-dividend dates at fair
value. Interest income, including amortization and accretion of premiums and discounts on debt securities, is recognized daily on an accrual basis.
Foreign Currency Translation: The Fund’s books and records are maintained in U.S. dollars. Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates determined as of the close of trading on the New York Stock Exchange (“NYSE”). Purchases and sales of
investments are recorded at the rates of exchange prevailing on the respective dates of such transactions. Generally, when the U.S. dollar rises in value
against a foreign currency, the investments denominated in that currency will lose value; the opposite effect occurs if the U.S. dollar falls in relative value.
The Fund does not isolate the effect of fluctuations in
foreign exchange rates from the effect of fluctuations in the market prices of investments for financial reporting purposes. Accordingly, the effects of
changes in exchange rates on investments are not segregated in the Statement of Operations from the effects of changes in market prices of those investments,
but are included as a component of net realized and unrealized gain (loss) from investments. The Fund
reports realized currency gains (losses) on foreign currency related transactions as components of net realized gain (loss) for financial reporting purposes,
whereas such components are generally treated as ordinary income for U.S. federal income tax purposes.
Bank Overdraft: The Fund
had outstanding cash disbursements exceeding deposited cash amounts at the custodian during the reporting period. The Fund is obligated to repay the custodian for any overdraft, including any related costs or expenses,
where applicable. For financial reporting purposes, overdraft fees, if any, are included in interest expense in the Statement of Operations.
Collateralization: If required by an exchange or counterparty agreement, the Fund may be required to deliver/deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for certain investments.
Distributions: Distributions from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates and made at least
annually. The portion of distributions, if any, that exceeds a fund’s current and accumulated earnings and profits, as measured on a tax basis, constitute a non-taxable return of capital. The character and timing of distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.
Deferred Compensation Plan: Under the Deferred Compensation Plan (the “Plan”) approved by the Board,
the directors who are not “interested persons” of the Fund, as defined in the 1940 Act (“Independent Directors”), may defer a portion
of their annual complex-wide compensation. Deferred amounts earn an approximate return as though equivalent dollar amounts had been invested in common shares
of certain funds in the BlackRock Fixed-Income Complex selected by the Independent Directors. This has the same economic effect for the Independent Directors
as if the Independent Directors had invested the deferred amounts directly in certain funds in the BlackRock Fixed-Income Complex.
The Plan is not funded and obligations thereunder represent
general unsecured claims against the general assets of the Fund, as applicable. Deferred compensation liabilities, if any, are included in the Directors’ and Officer’s fees payable in the Statement of Assets and Liabilities and will remain as a liability of the Fund until such amounts are distributed in accordance with the Plan. Net appreciation (depreciation) in the value of participants’ deferral accounts is allocated among the participating funds in
the BlackRock Fixed-Income Complex and reflected as Directors and Officer expense on the Statement of Operations. The Directors and Officer expense may be
negative as a result of a decrease in value of the deferred accounts.
Indemnifications: In the normal course of
business, the Fund enters into contracts that contain a variety of representations that provide general indemnification. The Fund’s maximum exposure under these arrangements is unknown because it involves future potential claims against the
Fund, which cannot be predicted with any certainty.
20 2024 BlackRock
Annual Report to Shareholders
Notes
to Financial Statements (continued)
Other: Expenses directly related to the Fund are charged to the Fund. Other operating
expenses shared by several funds, including other funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate
methods.
Segment Reporting: The Fund adopted Financial Accounting Standards Board Update 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures (“ASU 2023-07”) during the period. The Fund’s adoption of the new standard impacted financial statement disclosures only and did not affect the Fund’
s financial position or results of operations.
The Chief Financial Officer acts as the Fund’s Chief Operating Decision Maker (“CODM’) and is responsible for assessing performance and
allocating resources with respect to the Fund. The CODM has concluded that the Fund operates as a single operating segment since the Fund has a single investment strategy as disclosed in its prospectus, against which the CODM assesses performance.
The financial information provided to and reviewed by the CODM is presented within the Fund’s
financial statements.
3.
INVESTMENT VALUATION AND FAIR VALUE MEASUREMENTS
Investment Valuation Policies: The Fund’
s investments are valued at fair value (also referred to as “market value” within the financial statements) each day that the Fund is open for business and, for financial reporting purposes, as of the report date. U.S. GAAP defines fair value as the price a fund would receive to sell an asset or pay to
transfer a liability in an orderly transaction between market participants at the measurement date. The Board has approved the designation of the Fund’s Manager as the valuation designee for the Fund. The Fund determines the fair values of its financial instruments using various independent dealers or pricing services under the Manager’s policies. If a security’s market price is not readily available or does not otherwise accurately represent the fair value of the security, the security will be valued in
accordance with the Manager’s policies and procedures as reflecting fair value. The Manager has formed a committee (the “Valuation
Committee”) to develop pricing policies and procedures and to oversee the pricing function for all financial instruments, with assistance from other BlackRock pricing
committees.
Fair Value Inputs and
Methodologies: The following methods and inputs are used to establish the fair value of the
Fund’s assets and liabilities:
•Fixed-income investments for which market quotations are readily available are generally valued using the last available bid price or current market quotations provided
by independent dealers or third-party pricing services. Pricing services generally value fixed-income securities assuming orderly transactions of an institutional round
lot size, but a fund may hold or transact in such securities in smaller, odd lot sizes. Odd lots may trade at lower prices than institutional round lots. The pricing services
may use matrix pricing or valuation models that utilize certain inputs and assumptions to derive values, including transaction data (e.g., recent representative bids and
offers), market data, credit quality information, perceived market movements, news, and other relevant information. Certain fixed-income securities, including
asset-backed and mortgage related securities may be valued based on valuation models that consider the estimated cash flows of each tranche of the entity, establish a benchmark yield and develop an estimated tranche specific spread to the benchmark yield based on the unique attributes of the tranche. The amortized cost method of valuation may be used with respect to debt obligations with sixty days or less remaining to maturity unless the Manager determines such method does not represent fair value.
•Investments in open-end U.S. mutual funds (including money market funds) are valued at
that day’s NAV.
•Futures contracts are valued based on that day’s last reported settlement or trade price on the exchange where the contract is traded.
•Exchange-traded options are valued at the mean between the last bid and ask prices at the close of the options market in which the options trade. An exchange-traded
option for which there is no mean price is valued at the last bid (long positions) or ask (short positions) price. If no bid or ask price is available, the prior day’s
price will be used, unless it is determined that the prior day’s price no longer reflects the fair value of the option. Over-the-counter (“OTC”) options and
options on swaps (“swaptions”) are valued by an independent pricing service using a mathematical model, which incorporates a number of market data factors, such
as the trades and prices of the underlying instruments.
If events (e.g., market volatility, company announcement or a natural disaster) occur that are expected to materially affect the value of
such investment, or in the event that application of these methods of valuation results in a price for an investment that is deemed not to be representative of
the market value of such investment, or if a price is not available, the investment will be valued by the Valuation Committee in accordance with the
Manager’s policies and procedures as reflecting fair value (“Fair Valued Investments”). The fair valuation approaches that may be used by the
Valuation Committee include market approach, income approach and cost approach. Valuation techniques such as discounted cash flow, use of market comparables
and matrix pricing are types of valuation approaches and are typically used in determining fair value. When determining the price for Fair Valued Investments,
the Valuation Committee seeks to determine the price that the Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or
liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Valuation Committee deems relevant and consistent
with the principles of fair value measurement as of the measurement date.
Fair Value Hierarchy: Various inputs are used in determining the fair value of
financial instruments at the measurement date. These inputs to valuation techniques are categorized into a fair value hierarchy consisting of three broad levels for financial
reporting purposes as follows:
•Level 1 – Unadjusted price quotations in active markets/exchanges that the Fund has the ability to access for identical assets or liabilities;
•Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and
•Level 3 – Inputs that are unobservable and significant to the entire fair value measurement for the asset or liability (including the Valuation Committee’s
assumptions used in determining the fair value of financial instruments).
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is
greatest for instruments categorized in Level 3. The
Notes to Financial Statements
21
Notes
to Financial Statements (continued)
inputs used to measure fair value may fall into different levels of the fair value hierarchy.
In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair
value measurement in its entirety. Investments classified within Level 3
have significant unobservable inputs used by the Valuation Committee in determining the price for Fair Valued Investments. Level 3 investments include equity
or debt issued by privately held companies or funds that may not have a secondary market and/or may have a limited number of investors. The categorization of a value determined for financial instruments is based on the
pricing transparency of the financial instruments and is not necessarily an indication of the risks associated with investing in those securities.
4.
SECURITIES AND OTHER INVESTMENTS
Asset-Backed and Mortgage-Backed
Securities: Asset-backed securities are generally issued as pass-through certificates or as debt instruments. Asset-backed securities issued as pass-through certificates represent undivided fractional ownership interests in an underlying pool of assets. Asset-backed securities issued as debt instruments,
which are also known as collateralized obligations, are typically issued as the debt of a special purpose entity organized solely for the purpose of owning
such assets and issuing such debt. Asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties.
The yield characteristics of certain asset-backed securities may differ from traditional debt securities. One such major difference is that all or a principal
part of the obligations may be prepaid at any time because the underlying assets (i.e., loans) may be prepaid at any time. As a result, a decrease in interest
rates in the market may result in increases in the level of prepayments as borrowers, particularly mortgagors, refinance and repay their loans. An increased
prepayment rate with respect to an asset-backed security will have the effect of shortening the maturity of the security. In addition, a fund may subsequently
have to reinvest the proceeds at lower interest rates. If a fund has purchased such an asset-backed security at a premium, a faster than anticipated prepayment rate could
result in a loss of principal to the extent of the premium paid.
For mortgage pass-through securities (the “Mortgage Assets”) there are a number of important differences among the agencies and instrumentalities of the U.S.
Government that issue mortgage-related securities and among the securities that they issue. For example, mortgage-related securities guaranteed by Ginnie Mae
are guaranteed as to the timely payment of principal and interest by Ginnie Mae and such guarantee is backed by the full faith and credit of the United States.
However, mortgage-related securities issued by Freddie Mac and Fannie Mae, including Freddie Mac and Fannie Mae guaranteed mortgage pass-through certificates,
which are solely the obligations of Freddie Mac and Fannie Mae, are not backed by or entitled to the full faith and credit of the United States, but are supported by the
right of the issuer to borrow from the U.S. Treasury.
Non-agency mortgage-backed securities are securities issued by non-governmental issuers and have no direct or indirect government guarantees of payment and are subject
to various risks. Non-agency mortgage loans are obligations of the borrowers thereunder only and are not typically insured or guaranteed by any other person or
entity. The ability of a borrower to repay a loan is dependent upon the income or assets of the borrower. A number of factors, including a general economic
downturn, acts of God, terrorism, social unrest and civil disturbances, may impair a borrower’s ability to repay its loans.
Collateralized Debt Obligations: Collateralized debt obligations (“CDOs”), including collateralized bond obligations (“CBOs”) and collateralized loan obligations (“CLOs”), are types of asset-backed securities. A CDO is an entity that is backed by a diversified pool of debt securities (CBOs) or syndicated bank loans (CLOs). The cash flows of the
CDO can be split into multiple segments, called “tranches,” which will vary in risk profile and yield. The riskiest segment is the subordinated or
“equity” tranche. This tranche bears the greatest risk of defaults from the underlying assets in the CDO and serves to protect the other, more
senior, tranches from default in all but the most severe circumstances. Since it is shielded from defaults by the more junior tranches, a “senior”
tranche will typically have higher credit ratings and lower yields than their underlying securities, and often receive investment grade ratings from one or
more of the nationally recognized rating agencies. Despite the protection from the more junior tranches, senior tranches can experience substantial losses due
to actual defaults, increased sensitivity to future defaults and the disappearance of one or more protecting tranches as a result of changes in the credit profile of the
underlying pool of assets.
Multiple Class Pass-Through Securities:
Multiple class pass-through securities, including collateralized mortgage obligations (“CMOs”) and commercial mortgage-backed securities, may be
issued by Ginnie Mae, U.S. Government agencies or instrumentalities or by trusts formed by private originators of, or investors in, mortgage loans. In general,
CMOs are debt obligations of a legal entity that are collateralized by a pool of residential or commercial mortgage loans or Mortgage Assets. The payments on these are used to make payments on the CMOs or multiple pass-through securities. Multiple class pass-through securities represent direct ownership interests in the Mortgage
Assets. Classes of CMOs include interest only (“IOs”), principal only (“POs”), planned amortization classes and targeted amortization
classes. IOs and POs are stripped mortgage-backed securities representing interests in a pool of mortgages, the cash flow from which has been separated into
interest and principal components. IOs receive the interest portion of the cash flow while POs receive the principal portion. IOs and POs can be extremely
volatile in response to changes in interest rates. As interest rates rise and fall, the value of IOs tends to move in the same direction as interest rates. POs
perform best when prepayments on the underlying mortgages rise since this increases the rate at which the principal is returned and the yield to maturity on
the PO. When payments on mortgages underlying a PO are slower than anticipated, the life of the PO is lengthened and the yield to maturity is reduced. If the
underlying Mortgage Assets experience greater than anticipated prepayments of principal, a fund’s initial investment in the IOs may not fully recoup.
TBA Commitments: TBA commitments are forward agreements for the purchase or sale of securities, including mortgage-backed securities for a fixed price, with payment and delivery on an agreed upon future settlement date. The specific securities to be delivered are not identified at the trade date. However, delivered securities must meet
specified terms, including issuer, rate and mortgage terms. When entering into TBA commitments, a fund may take possession of or deliver the underlying
mortgage-backed securities but can extend the settlement or roll the transaction. TBA commitments involve a risk of loss if the value of the security to be
purchased or sold declines or increases, respectively, prior to settlement date, if there are expenses or delays in connection with the TBA transactions, or if the
counterparty fails to complete the transaction.
In order to better define contractual rights and to secure rights that will help a fund mitigate its counterparty risk, TBA commitments
may be entered into by a fund under Master Securities Forward Transaction Agreements (each, an “MSFTA”). An MSFTA typically contains, among other things, collateral posting terms and netting
provisions in the event of default and/or termination event. The collateral requirements are typically calculated by netting the mark-to-market amount for each
transaction under such agreement and comparing that amount to the value of the collateral currently pledged by a fund and the counterparty. Cash collateral
that has been pledged to cover the obligations of a fund and cash collateral received from the counterparty, if any, is reported separately in the Statement of
Assets and Liabilities as cash pledged as collateral for TBA commitments or cash received as collateral for TBA commitments, respectively. Non-cash collateral
pledged by a fund, if any, is noted in the Schedule of Investments. Typically, a fund is
22 2024 BlackRock
Annual Report to Shareholders
Notes
to Financial Statements (continued)
permitted to sell, re-pledge or use the collateral it receives; however, the counterparty is
not permitted to do so. To the extent amounts due to a fund are not fully collateralized, contractually or otherwise, a fund bears the risk of loss from counterparty
non-performance.
Mortgage Dollar
Roll Transactions: The Fund may sell TBA mortgage-backed securities and
simultaneously contract to repurchase substantially similar (i.e., same type, coupon and maturity) securities on a specific future date at an agreed upon
price. During the period between the sale and repurchase, a fund is not entitled to receive interest and principal payments on the securities sold. Mortgage
dollar roll transactions are treated as purchases and sales and a fund realizes gains and losses on these transactions. Mortgage dollar rolls involve the risk
that the market value of the securities that a fund is required to purchase may decline below the agreed upon repurchase price of those securities.
Reverse Repurchase Agreements: Reverse repurchase agreements are agreements with qualified third-party broker dealers in which a fund sells securities to a bank or broker-dealer and agrees to repurchase the same securities at a mutually agreed upon date and price. A fund receives cash from the sale to use for other investment
purposes. During the term of the reverse repurchase agreement, a fund continues to receive the principal and interest payments on the securities sold. Certain
agreements have no stated maturity and can be terminated by either party at any time. Interest on the value of the reverse repurchase agreements issued and
outstanding is based upon competitive market rates determined at the time of issuance. A fund may utilize reverse repurchase agreements when it is anticipated
that the interest income to be earned from the investment of the proceeds of the transaction is greater than the interest expense of the transaction. Reverse
repurchase agreements involve leverage risk. If a fund suffers a loss on its investment of the transaction proceeds from a reverse repurchase agreement,
a fund would still be required to pay the full repurchase price. Further, a fund remains subject to the risk that the market value of the securities
repurchased declines below the repurchase price. In such cases, a fund would be required to return a portion of the cash received from the transaction or provide
additional securities to the counterparty.
Cash received in exchange for securities delivered plus accrued interest due to the counterparty is recorded as a liability in the
Statement of Assets and Liabilities at face value including accrued interest. Due to the short-term nature of the reverse repurchase agreements, face value
approximates fair value. Interest payments made by a fund to the counterparties are recorded as a component of interest expense in the Statement of
Operations. In periods of increased demand for the security, a fund may receive a fee for the use of the security by the counterparty, which may result in interest income to
a fund.
For the year ended December 31, 2024, the average daily amount of reverse repurchase agreements
outstanding and the weighted average interest rate for the Fund were $37,924 and 1.94%, respectively.
Reverse repurchase transactions are entered into by a fund under
Master Repurchase Agreements (each, an “MRA”), which permit a fund, under certain circumstances, including an event of default (such as bankruptcy
or insolvency), to offset payables and/or receivables under the MRA with collateral held and/or posted to the counterparty and create one single net payment
due to or from a fund. With reverse repurchase transactions, typically a fund and counterparty under an MRA are permitted to sell, re-pledge, or use the
collateral associated with the transaction. Bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of the MRA counterparty’s bankruptcy or insolvency. Pursuant to the terms of the MRA, a fund receives or posts securities and cash as collateral
with a market value in excess of the repurchase price to be paid or received by a fund upon the maturity of the transaction. Upon a bankruptcy or insolvency of
the MRA counterparty, a fund is considered an unsecured creditor to the extent that the aggregate market value of the cash collateral and the purchased
securities it holds is less than the repurchase price. As such, the receipt of any shortfall or any closeout amount owed to a fund upon termination of the MRA could be
delayed or not received at all.
In the event
the counterparty of securities under an MRA files for bankruptcy or becomes insolvent, a fund’s use of the proceeds from the agreement may be restricted while the
counterparty, or its trustee or receiver, determines whether or not to enforce a fund’s obligation to repurchase the securities.
5.
DERIVATIVE FINANCIAL INSTRUMENTS
The Fund engages in various portfolio investment strategies using derivative contracts both to increase the returns of the Fund and/or to
manage its exposure to certain risks such as credit risk, equity risk, interest rate risk, foreign currency exchange rate risk, commodity price risk or other
risks (e.g., inflation risk). Derivative financial instruments categorized by risk exposure are included in the Schedule of Investments. These contracts may be transacted on
an exchange or OTC.
Futures
Contracts: Futures contracts are purchased or sold to gain exposure to, or manage exposure to, changes in interest rates (interest rate risk) and changes in the value of equity securities (equity risk) or foreign currencies (foreign currency exchange rate risk).
Futures contracts are exchange-traded agreements between the Fund and a counterparty to buy or sell a specific quantity of an underlying
instrument at a specified price and on a specified date. Depending on the terms of a contract, it is settled either through physical delivery of the underlying
instrument on the settlement date or by payment of a cash amount on the settlement date. Upon entering into a futures contract, the Fund is required
to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on a contract’s size and risk profile. The
initial margin deposit must then be maintained at an established level over the life of the contract. Amounts pledged, which are considered restricted, are included in cash
pledged for futures contracts in the Statement of Assets and Liabilities.
Securities deposited as initial margin are designated in the Schedule of Investments and cash deposited, if any, are shown as cash pledged for futures contracts in the
Statement of Assets and Liabilities. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily
fluctuation in market value of the contract (“variation margin”). Variation margin is recorded as unrealized appreciation (depreciation) and,
if any, shown as variation margin receivable (or payable) on futures contracts in the Statement of Assets and Liabilities. When the contract is closed, a
realized gain or loss is recorded in the Statement of Operations equal to the difference between the notional amount of the contract at the time it was opened
and the notional amount at the time it was closed. The use of futures contracts involves the risk of an imperfect correlation in the movements in the price of futures
contracts and interest rates, foreign currency exchange rates or underlying assets.
Options: The Fund may purchase and write call and put options to increase or
decrease its exposure to the risks of underlying instruments, including equity risk, interest rate risk and/or commodity price risk and/or, in the case of options written, to
generate gains from options premiums.
Notes to Financial Statements
23
Notes
to Financial Statements (continued)
A call option gives the purchaser (holder) of the option the right (but not the obligation) to
buy, and obligates the seller (writer) to sell (when the option is exercised) the underlying instrument at the exercise or strike price at any time or at a
specified time during the option period. A put option gives the holder the right to sell and obligates the writer to buy the underlying instrument at the exercise or strike
price at any time or at a specified time during the option period.
Premiums paid on options purchased and premiums received on options written, as well as the daily fluctuation in market value, are included in investments at value –
unaffiliated and options written at value, respectively, in the Statement of Assets and Liabilities. When an instrument is purchased or sold through the
exercise of an option, the premium is offset against the cost or proceeds of the underlying instrument. When an option expires, a realized gain or loss is
recorded in the Statement of Operations to the extent of the premiums received or paid. When an option is closed or sold, a gain or loss is recorded in the
Statement of Operations to the extent the cost of the closing transaction exceeds the premiums received or paid. When the Fund writes a call option, such
option is typically “covered,” meaning that it holds the underlying instrument subject to being called by the option counterparty. When the Fund
writes a put option, cash is segregated in an amount sufficient to cover the obligation. These amounts, which are considered restricted, are included in cash pledged as
collateral for options written in the Statement of Assets and Liabilities.
•Swaptions — The Fund may purchase and write options on swaps
(“swaptions”) primarily to preserve a return or spread on a particular investment or portion of the Fund’s holdings, as a duration management technique or to protect against an increase in the price of
securities it anticipates purchasing at a later date. The purchaser and writer of a swaption is buying or granting the right to enter into a previously agreed upon interest
rate or credit default swap agreement (interest rate risk and/or credit risk) at any time before the expiration of the option.
In purchasing and writing options, the Fund bears the risk of an
unfavorable change in the value of the underlying instrument or the risk that it may not be able to enter into a closing transaction due to an illiquid market.
Exercise of a written option could result in the Fund purchasing or selling a security when it otherwise would not, or at a price different from the current market
value.
Swaps: Swap contracts are entered into to manage exposure to issuers, markets and securities. Such contracts are agreements between the Fund and a counterparty to make periodic net payments on a specified notional amount or a net payment upon termination. Swap agreements are privately negotiated in the OTC market and may be entered into as a bilateral contract (“OTC swaps”) or centrally cleared (“centrally cleared swaps”).
For OTC swaps, any upfront premiums paid and any upfront fees
received are shown as swap premiums paid and swap premiums received, respectively, in the Statement of Assets and Liabilities and amortized over the term of the contract. The daily
fluctuation in market value is recorded as unrealized appreciation (depreciation) on OTC swaps in the Statement of Assets and Liabilities. Payments received or paid are recorded in the Statement of
Operations as realized gains or losses, respectively. When an OTC swap is terminated, a realized gain or loss is recorded in the Statement of Operations equal to the difference between the proceeds from (or cost of) the
closing transaction and the Fund’s basis in
the contract, if any. Generally, the basis of the contract is the premium received or paid.
In a centrally cleared swap, immediately following execution of the swap contract, the swap contract is novated to a central counterparty (the “CCP”) and the
CCP becomes the Fund’s counterparty on the swap. The Fund is required to interface with the CCP through the broker. Upon entering into a centrally cleared swap, the Fund is required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on the size and risk profile of the particular swap. Securities
deposited as initial margin are designated in the Schedule of Investments and cash deposited is shown as cash pledged for centrally cleared swaps in the
Statement of Assets and Liabilities. Amounts pledged, which are considered restricted cash, are included in cash pledged for centrally cleared swaps in the Statement of Assets and
Liabilities. Pursuant to the contract, the Fund agrees to receive from or pay to the broker variation margin. Variation margin is recorded as unrealized appreciation (depreciation) and shown as variation margin receivable (or payable) on centrally cleared swaps in the Statement of Assets and Liabilities. Payments received from (paid to) the counterparty
are amortized over the term of the contract and recorded as realized gains (losses) in the Statement of Operations, including those at termination.
•Credit default swaps — Credit default swaps are entered into to manage exposure to the market or certain sectors of the market, to reduce risk exposure to defaults
of corporate and/or sovereign issuers or to create exposure to corporate and/or sovereign issuers to which a fund is not otherwise exposed (credit risk).
The Fund may either buy or sell (write) credit default swaps on single-name issuers (corporate
or sovereign), a combination or basket of single-name issuers or traded indexes. Credit default swaps are agreements in which the protection buyer pays
fixed periodic payments to the seller in consideration for a promise from the protection seller to make a specific payment should a negative credit event
take place with respect to the referenced entity (e.g., bankruptcy, failure to pay, obligation acceleration, repudiation, moratorium or restructuring). As a
buyer, if an underlying credit event occurs, the Fund will either (i)
receive from the seller an amount equal to the notional amount of the swap and deliver the referenced security or underlying securities comprising the
index, or (ii) receive a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities
comprising the index. As a seller (writer), if an underlying credit event occurs, the Fund will either pay the buyer an amount equal to the notional amount of the swap and take delivery
of the referenced security or underlying securities comprising the index or pay a net settlement of cash equal to the notional amount of the swap less the
recovery value of the security or underlying securities comprising the index.
•Interest rate swaps — Interest rate swaps are entered into to
gain or reduce exposure to interest rates or to manage duration, the yield curve or interest rate (interest rate risk).
Interest rate swaps are agreements in which
one party pays a stream of interest payments, either fixed or floating, in exchange for another party’s stream of interest payments, either fixed or
floating, on the same notional amount for a specified period of time. In more complex interest rate swaps, the notional principal amount may decline (or
amortize) over time.
Swap transactions
involve, to varying degrees, elements of interest rate, credit and market risks in excess of the amounts recognized in the Statement of Assets and Liabilities.
Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its
obligation to perform or disagree as to the meaning of the contractual terms in the agreements, and that there may be unfavorable changes in interest rates
and/or market values associated with these transactions.
24 2024 BlackRock
Annual Report to Shareholders
Notes
to Financial Statements (continued)
Master Netting Arrangements: In order to define its contractual rights and to secure rights that will help it mitigate its counterparty risk, the Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its derivative contract
counterparties. An ISDA Master Agreement is a bilateral agreement between the Fund and a counterparty that governs certain OTC derivatives and typically contains,
among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. Under an ISDA Master Agreement,
the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The
provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the
counterparty. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against the right of offset in bankruptcy,
insolvency or other events.
Collateral Requirements: For derivatives
traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark-to-market amount for each transaction under such agreement and
comparing that amount to the value of any collateral currently pledged by the Fund and the counterparty.
Cash collateral that has been pledged to cover obligations of the
Fund and cash collateral received from the counterparty, if any, is
reported separately in the Statement of Assets and Liabilities as cash pledged as collateral and cash received as collateral, respectively. Non-cash collateral pledged by the Fund, if any, is noted in the
Schedule of Investments. Generally, the amount of collateral due from or to a counterparty is subject to a certain minimum transfer amount threshold before a transfer is required,
which is determined at the close of business of the Fund. Any additional required collateral is delivered to/pledged by the Fund on the next business day. Typically, the counterparty is not permitted to sell, re-pledge or use cash and non-cash collateral it receives. The Fund generally agrees not to use non-cash collateral that it receives but may, absent
default or certain other circumstances defined in the underlying ISDA Master Agreement, be permitted to use cash collateral received. In such cases, interest
may be paid pursuant to the collateral arrangement with the counterparty. To the extent amounts due to the Fund from the counterparties are not fully collateralized, the Fund bears the risk of loss from counterparty non-performance. Likewise, to the extent the Fund has
delivered collateral to a counterparty and stands ready to perform under the terms of its agreement with such counterparty, the Fund bears
the risk of loss from a counterparty in the amount of the value of the collateral in the event the counterparty fails to return such collateral. Based on the terms of
agreements, collateral may not be required for all derivative contracts.
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements, if any, in the Statement of Assets and Liabilities.
6.
INVESTMENT ADVISORY AGREEMENT AND OTHER
TRANSACTIONS WITH AFFILIATES
Investment Advisory: The Fund entered into an Investment Advisory Agreement with
the Manager, the Fund’s investment adviser and an indirect, wholly-owned subsidiary of BlackRock, Inc. (“BlackRock”), to provide investment advisory and administrative services. The Manager is responsible for the management of the Fund’s portfolio and provides the
personnel, facilities, equipment and certain other services necessary to the operations of the Fund.
For such services, the Fund pays the Manager a monthly fee at an annual rate equal to 0.85% of the average daily value of the Fund’s net assets, plus the proceeds of
any debt securities or outstanding borrowings used for leverage.
For purposes of calculating this fee, “net assets” means the total assets of the Fund minus the sum of its accrued liabilities.
Expense Waivers: The Manager voluntarily agreed to waive a portion of its investment advisory fees
equal to the annual rate of 0.30% of the Fund’s average daily net assets, plus the proceeds of any outstanding borrowings used for leverage. This amount
is included in fees waived and/or reimbursed by the Manager in the Statement of Operations. During the year ended December 31, 2024, the Manager waived $113,333 pursuant to
this agreement.
The Manager contractually
agreed to waive its investment advisory fees by the amount of investment advisory fees the Fund pays to the Manager indirectly through its investment in
affiliated money market funds (the “affiliated money market fund waiver”) through June 30, 2026. The contractual agreement may be terminated upon 90 days’ notice by a majority of the Independent Directors, or by a vote of a majority of the outstanding voting securities of the Fund. This amount is included in fees waived
and/or reimbursed by the Manager in the Statement of Operations. For the year ended December 31, 2024, the amount waived was $787.
The Manager contractually agreed to waive its investment advisory
fee with respect to any portion of the Fund’s assets invested in affiliated equity and fixed-income mutual funds and affiliated exchange-traded funds
that have a contractual management fee through June 30, 2026. The agreement can be renewed for annual periods thereafter, and may be terminated on 90
days’ notice, each subject to approval by a majority of the Fund’s Independent Directors. For the year ended December 31, 2024, there were no fees waived by the
Manager pursuant to this arrangement.
Directors and Officers: Certain directors and/or officers of the Fund are directors and/or officers of BlackRock or its affiliates. The Fund reimburses the Manager for a portion of the compensation paid to the Fund’s Chief Compliance Officer, which is included in Directors and Officer in the Statement of Operations.
For the year ended December 31, 2024, purchases and sales of
investments, including paydowns/payups, mortgage dollar rolls and excluding short-term securities, were as follows:
| |
U.S. Government Securities |
|
| |
|
|
|
|
| |
|
|
|
|
For the year ended December 31, 2024, purchases and sales related to mortgage dollar rolls were
$12,382,967 and $12,379,322, respectively.
Notes to Financial Statements
25
Notes
to Financial Statements (continued)
8.
INCOME TAX INFORMATION
It is the Fund’s policy to comply with
the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies, and to distribute substantially all of its taxable income to
its shareholders. Therefore, no U.S. federal income tax provision is required.
The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’
s U.S. federal tax returns generally remains open for a period of three years after
they are filed. The statutes of limitations on the Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.
Management has analyzed tax laws and regulations and their application to the Fund as of December 31, 2024, inclusive of the open tax return years, and does not believe
that there are any uncertain tax positions that require recognition of a tax liability in the Fund’s financial statements. Management’s analysis is based on the tax laws and judicial and administrative interpretations thereof in effect as of the date of these financial statements, all of which are subject to change, possibly with retroactive effect
which may impact the Fund’s NAV.
U.S. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no
effect on net assets or NAVs per share. As of period end, permanent differences attributable to non-deductible expenses were reclassified to the following accounts:
| |
|
Accumulated
Earnings (Loss) |
| |
|
|
The tax character of distributions
paid was as follows:
As of December 31, 2024, the tax components of accumulated earnings (loss) were as
follows:
| |
Non-Expiring
Capital Loss
|
|
|
| |
|
|
|
| |
Amounts available to offset future realized capital gains. |
| |
The difference between book-basis and tax-basis net unrealized gains (losses) was attributable primarily to the realization for tax purposes of unrealized gains (losses)
on certain futures contracts. |
As of December 31, 2024, gross unrealized appreciation and depreciation
based on cost of investments (including short positions and derivatives, if any) for U.S. federal income tax purposes were as follows:
| |
|
Gross Unrealized
Appreciation |
Gross Unrealized
Depreciation |
Net Unrealized
Appreciation
(Depreciation) |
| |
|
|
|
|
In the
normal course of business, the Fund invests in securities or other
instruments and may enter into certain transactions, and such activities subject the Fund to various risks, including among others, fluctuations in the market (market risk) or
failure of an issuer to meet all of its obligations. The value of securities or other instruments may also be affected by various factors, including, without
limitation: (i) the general economy; (ii) the overall market as well as local, regional or global political and/or social instability; (iii) regulation,
taxation or international tax treaties between various countries; or (iv) currency, interest rate and price fluctuations. Local, regional or global events such as war, acts
of terrorism, the spread of infectious illness or other public health issues, recessions, or other events could have a significant impact on the Fund and its investments.
Illiquidity Risk: The Fund may invest without limitation in illiquid or less liquid investments or investments in which no secondary market is readily available or which are otherwise illiquid, including private placement securities. The Fund may not be able to readily dispose of such investments at prices that approximate those at which
the Fund could sell such investments if they were more widely traded and, as a result of such illiquidity, the Fund may have to sell other
investments or engage in borrowing transactions if necessary to raise funds to meet its obligations. Limited liquidity can also affect the market price of
investments, thereby adversely affecting the Fund’s NAV and ability to make dividend distributions. Privately issued debt securities are often of
below investment grade quality, frequently are unrated and present many of the same risks as investing in below investment grade public debt securities.
Market Risk: The Fund may be exposed to prepayment risk, which is the risk that borrowers may exercise their option to prepay principal earlier than scheduled during periods of declining interest rates, which would force the Fund to reinvest in lower yielding securities. The Fund may also be exposed to reinvestment risk, which is the risk that
income
26
2024 BlackRock Annual Report to Shareholders
Notes
to Financial Statements (continued)
from the Fund’s portfolio will decline if the Fund invests the proceeds from matured,
traded or called fixed-income securities at market interest rates that are below the Fund portfolio’s current earnings rate.
Counterparty Credit Risk: The Fund may be exposed to counterparty credit risk, or the risk that an entity may
fail to or be unable to perform on its commitments related to unsettled or open transactions, including making timely interest and/or principal payments or
otherwise honoring its obligations. The Fund manages counterparty credit risk by entering into transactions only with counterparties that the Manager believes
have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially
expose the Fund to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The
extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to
these financial assets is approximately their value recorded in the Statement of Assets and Liabilities, less any collateral held by the Fund.
A derivative contract may suffer a mark-to-market loss if the
value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not
perform under the contract.
For OTC options
purchased, the Fund bears the risk of loss in the amount of the premiums
paid plus the positive change in market values net of any collateral held by the Fund should the counterparty fail to perform under the contracts. Options
written by the Fund do not typically give rise to counterparty credit risk, as options written generally obligate the Fund, and not the counterparty, to
perform. The Fund may be exposed to counterparty credit risk with respect to options written to the extent the Fund deposits
collateral with its counterparty to a written option.
With exchange-traded futures, there is less counterparty credit risk to the Fund since the exchange or clearinghouse, as counterparty to
such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, credit risk is
limited to failure of the clearinghouse. While offset rights may exist under applicable law, the Fund does not have a contractual right of offset against a
clearing broker or clearinghouse in the event of a default (including the bankruptcy or insolvency). Additionally, credit risk exists in exchange-traded
futures with respect to initial and variation margin that is held in a clearing broker’s customer accounts. While clearing brokers are required to
segregate customer margin from their own assets, in the event that a clearing broker becomes insolvent or goes into bankruptcy and at that time there is a
shortfall in the aggregate amount of margin held by the clearing broker for all its clients, typically the shortfall would be allocated on a pro rata basis across all the
clearing broker’s customers, potentially resulting in losses to the Fund.
Geographic/Asset Class Risk: A diversified portfolio, where this is appropriate and consistent with a fund’s objectives, minimizes the risk that a price change of a particular investment will have a material impact on the NAV of a fund. The investment concentrations within the Fund’s portfolio are disclosed in its Schedule of Investments.
The Fund invests a significant portion of its assets in fixed-income securities and/or
uses derivatives tied to the fixed-income markets. Changes in market interest rates or economic conditions may affect the value and/or liquidity of such
investments. Interest rate risk is the risk that prices of bonds and other fixed-income securities will decrease as interest rates rise and increase as
interest rates fall. The Fund may be subject to a greater risk of rising interest rates during a period of historically low interest rates. Changing interest rates may
have unpredictable effects on markets, may result in heightened market volatility, and could negatively impact the Fund’s performance.
The Fund invests a significant portion of its assets in securities of issuers located in the United States. A decrease in imports or exports, changes in trade regulations, inflation and/or an economic recession in the United States may have a material adverse effect on the U.S. economy and the securities listed on U.S. exchanges. Proposed and adopted policy and legislative changes in the United States may also have a significant effect on U.S. markets generally, as well as on the value of certain securities.
Governmental agencies project that the United States will continue to maintain elevated public debt levels for the foreseeable future which may constrain
future economic growth. Circumstances could arise that could prevent the timely payment of interest or principal on U.S. government debt, such as reaching the
legislative “debt ceiling.” Such non-payment would result in substantial negative consequences for the U.S. economy and the global financial
system. If U.S. relations with certain countries deteriorate, it could adversely affect issuers that rely on the United States for trade. The United States has
also experienced increased internal unrest and discord. If these trends were to continue, they may have an adverse impact on the U.S. economy and the issuers in which the
Fund invests.
The Fund invests a significant portion of its assets in securities backed by commercial or residential mortgage loans or in issuers
that hold mortgage and other asset-backed securities. When a fund concentrates its investments in this manner, it assumes a greater risk of prepayment or
payment extension by securities issuers. Changes in economic conditions, including delinquencies and/or defaults on assets underlying these securities, can
affect the value, income and/or liquidity of such positions. Investment percentages in these securities are presented in the Schedule of Investments.
10.
CAPITAL
SHARE TRANSACTIONS
The Fund is authorized to issue 200 million shares, all of which were initially classified as
Common Shares. The Board is authorized, however, to reclassify any
unissued Common Shares to Preferred Shares without the approval of Common Shareholders.
For the periods shown, shares issued and outstanding increased by the following
amounts as a result of dividend reinvestment:
The Fund participated in an open market share repurchase program
(the “Repurchase Program”) through November 30, 2024. From December 1, 2023 through November 30, 2024, the Fund could repurchase up to 5%
of its outstanding common shares under the Repurchase Program, based on common shares outstanding as of the close of
Notes to Financial Statements
27
Notes
to Financial Statements (continued)
business on November 30, 2023, subject to certain conditions. The Repurchase Program had an
accretive effect as shares were purchased at a discount to the Fund’s NAV. The Repurchase Program expired on November 30, 2024 and was not renewed.
The Fund will make offers to purchase between 5% and 25% of its outstanding shares
at approximate 12 month intervals.
Repurchase offer results for
the year ended December 31, 2024 were as follows:
Commencement
Date of Tender
|
|
Number of Shares
Tendered |
Tendered Shares
as a Percentage of
Outstanding Shares |
Number of Tendered
Shares
Purchased |
Tendered Shares
Purchased
as a Percentage of
Outstanding Shares |
|
Total Amount of
Purchases |
| |
|
|
|
|
|
|
|
Repurchase offer results for the year ended December 31, 2023 were as
follows:
Commencement
Date of Tender
|
|
Number of Shares
Tendered |
Tendered Shares
as a Percentage of
Outstanding Shares |
Number of Tendered
Shares
Purchased |
Tendered Shares
Purchased
as a Percentage of
Outstanding Shares |
|
Total Amount of
Purchases |
| |
|
|
|
|
|
|
|
| |
Date
the repurchase offer period began. |
The amount of the repurchase offer is shown as redemptions of shares resulting from a repurchase offer in the Statements of Changes in Net Assets. The Fund charged a 2%
repurchase fee of the value of the shares that were repurchased to compensate the Fund for expenses directly related to the repurchase offer, which is included
in the capital share transactions in the Statements of the Changes in Net Assets. Costs directly related to the repurchase offer, primarily mailing and
printing costs, are shown as repurchase offer in the Statement of Operations.
Management’s evaluation of the impact of all subsequent
events on the Fund’s financial statements was completed through the date the financial statements were
issued and the following item was noted:
The Fund declared and paid or will pay distributions to Common Shareholders as
follows:
| |
|
|
|
|
Dividend Per
Common Share |
| |
|
|
|
|
|
| |
|
|
|
|
|
28 2024 BlackRock
Annual Report to Shareholders
Report
of Independent Registered Public Accounting Firm
To the Shareholders and
the Board of Directors of BlackRock Enhanced Government Fund, Inc.:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of BlackRock Enhanced Government Fund, Inc. (the
“Fund”), including the schedule of investments, as of December 31, 2024, the related statements of operations and cash flows for the year then
ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the
period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the
financial position of the Fund as of December 31, 2024, and the results of its operations and its cash flows for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s
financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the
purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial
highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our
procedures included confirmation of securities owned as of December 31, 2024, by correspondence with custodians or counterparties; when replies were not
received, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
Deloitte & Touche LLP
Boston,
Massachusetts
February 25, 2025
We have served as the auditor of one or more BlackRock investment companies since 1992.
Report of Independent Registered Public Accounting Firm
29
Important Tax Information (unaudited)
The Fund
hereby designates the following amount, or maximum amount allowable by law, of distributions from direct federal obligation interest for the fiscal year ended December
31, 2024:
| |
Federal Obligation
Interest |
| |
|
The law varies in
each state as to whether and what percent of ordinary income dividends attributable to federal obligations is exempt from state income tax. Shareholders are advised to check
with their tax advisers to determine if any portion of the dividends received is exempt from state income tax.
The Fund hereby designates the following amount, or maximum amount allowable by law, as interest income eligible to be treated as a Section 163(j) interest dividend for the
fiscal year ended December 31, 2024:
The Fund hereby
designates the following amount, or maximum amount allowable by law, as interest-related dividends eligible for exemption from U.S. withholding tax for nonresident aliens and
foreign corporations for the fiscal year ended December 31, 2024:
| |
Interest-
Related
Dividends |
| |
|
30 2024 BlackRock
Annual Report to Shareholders
Investment Objectives, Policies and Risks
Recent Changes
The following information is a summary of certain changes since
December 31, 2023. This information may not reflect all of the
changes that have occurred since you purchased the Fund.
During the Fund’s most recent fiscal year, there were no material changes in the Fund’s investment objectives or policies
that have not been approved by shareholders or in the principal risk factors associated with investment in the Fund.
Investment Objectives and Policies
The Fund’s investment objective is to provide stockholders
with current income and gains. The Fund has an interval fund structure, pursuant to which the Fund will conduct, subject to applicable Maryland law, annual
repurchase offers for between 5% and 25% of the Fund’s outstanding shares. The Fund’s investment objective and interval fund structure are
fundamental policies and may not be changed without the approval of a majority of the outstanding voting securities of the Fund (as defined in the Investment Company Act of
1940, as amended (the “Investment Company Act”)).
The Fund seeks to achieve its investment objective by investing primarily in a diversified portfolio of U.S. Government securities and U.S. Government Agency securities,
including U.S. Government mortgage-backed securities, that pay interest in an attempt to generate current income, and by employing a strategy of writing
(selling) call options on individual or baskets of U.S. Government securities, U.S. Government Agency securities and other debt securities and on interest rate
swaps (“swaptions”) held by the Fund in an effort to generate current gains from option premiums and to enhance the Fund’s risk-adjusted return (the
“Option Strategy”).
Under normal
market conditions, the Fund will invest at least 80% of the value of its net assets (including assets acquired with the proceeds from the sale of any preferred
stock), plus the amount of any outstanding debt securities or borrowings for investment purposes, in U.S. Government securities and U.S. Government Agency
securities, including U.S. Government mortgage-backed securities. The Fund’s investments in derivatives will be counted toward the Fund’s 80%
policy to the extent that they provide investment exposure to the securities included within that policy or to one or more market risk factors associated with
such securities. This is a non-fundamental policy and may be changed by the Board of Directors of the Fund provided that stockholders are provided with at
least 60 days’ prior notice of any change as required by the rules under the Investment Company Act.
The Fund may also invest up to 20% of its net assets in non-U.S.
Government debt securities of foreign or domestic issuers, including commercial paper, notes, corporate bonds, debentures, asset-backed securities,
mortgage-backed securities, corporate loans, sovereign debt securities and money market securities that are rated in one of the four highest rating categories
by at least one of the nationally recognized statistical rating organizations (including Baa or better by Moody’s Investors Service, Inc. or BBB or
better by S&P Global Ratings or Fitch Ratings, Inc.) or, if unrated, are considered by BlackRock Advisors, LLC (the “Manager”) to be of
comparable quality (referred to herein as “other debt securities”). Securities rated in any of the four highest rating categories are known as
“investment grade” securities. As part of its Option Strategy, the Fund may also write call options on these other debt securities.
The Fund is not limited as to the maturities of its portfolio
investments and may take full advantage of the entire range of maturities offered by U.S. Government securities, U.S. Government Agency securities and other
debt securities. The Manager may adjust the average maturity of the Fund’s portfolio from time to time, depending on its assessment of the relative yields available on
securities of different maturities and its assessment of future interest rate patterns.
Most of the options written by the Fund will be traded over-the-counter although the Fund may utilize exchange-traded options as well. In general, the Fund will primarily
write (sell) call options that are “European style,” meaning that the options may be exercised only on the expiration date. However, the Fund may
from time to time write call options that are “American style,” meaning that the options may be exercised at any point up to and including the expiration
date.
The Fund will generally write (sell)
call options that are “out-of-the-money” or “at-the-money” at the time of sale. Out-of-the-money call options are options with an exercise price that is above the principal value of the underlying U.S. Government security, U.S. Government Agency security or other debt security at the time of sale whereas
at-the-money call options are options with an exercise price that is equal to the principal value of the underlying U.S. Government security, U.S. Government
Agency security or other debt security at the time of sale. In addition to providing possible gains through premiums, out-of-the-money call options allow the
Fund to potentially benefit from appreciation in the U.S. Government securities, U.S. Government Agency securities or other debt securities held by the Fund
with respect to which the option was written, up to the exercise price. The Fund also reserves the right to sell call options that are
“in-the-money” (i.e., those with an exercise price below the principal value of the underlying security at the time of sale). When the price of the
security upon which a call option is written rises, call options that were out-of-the-money when written may become in-the-money (i.e., the principal value of
the security rises above the exercise price of the option), thereby increasing the likelihood that the options will be exercised and the Fund will be forced to sell the
security at the exercise price upon the purchaser’s exercise of the option.
The Fund expects that it will primarily write call options whose terms to expiration range from one to three months. The Fund reserves
the right to sell call options of both longer and shorter terms.
The Manager will attempt to maintain for the Fund written call options positions on U.S. Government securities, U.S. Government Agency
securities or other debt securities whose price movements, taken in the aggregate, are correlated with the price movements of the U.S. Government securities,
U.S. Government Agency securities and other debt securities held in the Fund’s portfolio. In doing so, the Manager will consider data relating to the
Fund’s fixed income holdings, including interest rates, maturity and coupon rate. The Fund anticipates that it will write (sell) call options on a
substantial portion of the U.S. Government securities, U.S. Government Agency securities and other debt securities held in its portfolio.
The Fund also may use other derivative strategies involving call
and put options, futures and forward contracts, swap agreements, options on swaps, short sales and other derivative instruments in an attempt to enhance return
or to hedge against market and other risks in the portfolio. The Fund may also enter into derivatives transactions that in certain circumstances may produce effects similar
to leverage.
Investment Objectives, Policies and Risks
31
Investment Objectives, Policies and Risks (continued)
Investment Objectives and Policies (continued)
The
Fund may vary its investment objective and policies for temporary defensive purposes during periods in which the Manager believes that conditions in the securities markets or other economic, financial or political conditions warrant and in order to keep the Fund’s cash fully invested, including during the period in which the net
proceeds of the offering are being invested. Under such conditions, the Fund may invest up to 100% of its total assets in short-term securities issued or
guaranteed by the U.S. Government or its instrumentalities or agencies, certificates of deposit, bankers’ acceptances and other bank obligations,
commercial paper rated in the highest category by an established rating service, or other debt securities deemed by the Manager to be consistent with a
defensive posture, or may hold its assets in cash. This might negatively affect the Fund’s ability to achieve its investment objective.
Leverage: Although the Fund has no present intention to use leverage, it may in the future
leverage its portfolio through borrowings, the issuance of debt securities, the issuance of preferred stock or a combination thereof. The Fund may borrow money
and issue debt securities in amounts up to 331/3 %, and may issue shares
of preferred stock in amounts up to 50%, of the value of its total assets to finance additional investments. The Fund also may borrow money as a temporary
measure for extraordinary or emergency purposes, including the payment of dividends and the settlement of securities transactions that otherwise might require untimely
dispositions of Fund securities.
The Fund may enter into
derivative securities transactions that have leverage embedded in them.
This section contains a discussion of the general risks of
investing in the Fund. The net asset value and market price of, and dividends paid on, the common shares will fluctuate with and be affected by, among other
things, the risks more fully described below. As with any fund, there can be no guarantee that the Fund will meet its investment objective or that the Fund’s
performance will be positive for any period of time. The order of the below risk factors does not indicate the significance of any particular risk factor.
Annual Repurchases of Fund Shares: The Fund
has an interval fund structure, pursuant to which the Fund will conduct, subject to applicable Maryland law, annual repurchase offers for between 5% and 25% of
the Fund’s outstanding shares. These required annual repurchases are likely to decrease the overall size of the Fund, which could over time: (i) harm the
Fund’s investment performance by limiting the extent to which the Fund may invest in illiquid securities; (ii) increase the Fund’s expense ratio as
the Fund’s assets decrease; (iii) threaten the Fund’s continued listing of its common shares on the New York Stock Exchange, and, consequently, the
liquidity of its shares; and (iv) jeopardize the Fund’s viability and continued existence. Moreover, there are additional risks associated with the
Fund’s annual repurchase offers, including the risk that: (i) because a repurchase offer will be for 5% to 25% of the Fund’s outstanding shares, if
the repurchase offer is oversubscribed, shareholders may be unable to liquidate all or a given percentage of their investment at net asset value during the
repurchase offer; (ii) due to the potential for the Fund to purchase shares on a pro rata basis if the repurchase offer is over-subscribed, some investors may
tender more shares than they wish to have repurchased in order to ensure the repurchase of a specific number of shares; (iii) the repurchase offer may not
eliminate any discount at which the Fund’s shares trade; and (iv) because the Fund expects, in certain circumstances, to liquidate portfolio securities
in order to fund repurchase offers, the need to sell such securities may in turn affect the market for such securities and accordingly diminish the value of the Fund’s
investments. Furthermore, to the extent the Fund borrows to finance the making of repurchases, interest on such borrowings reduce the Fund’s returns.
Investment and Market Discount Risk: An
investment in the Fund’s common shares is subject to investment risk, including the possible loss of the entire amount that you invest. As with any
stock, the price of the Fund’s common shares will fluctuate with market conditions and other factors. If shares are sold, the price received may be more or
less than the original investment. Common shares are designed for long-term investors and the Fund should not be treated as a trading vehicle. Shares of
closed-end management investment companies frequently trade at a discount from their net asset value. This risk is separate and distinct from the risk that the
Fund’s net asset value could decrease as a result of its investment activities. At any point in time an investment in the Fund’s common shares may
be worth less than the original amount invested, even after taking into account distributions paid by the Fund. During periods in which the Fund may use
leverage, the Fund’s investment, market discount and certain other risks will be magnified.
Debt Securities Risk: Debt securities, such as bonds, involve risks, such as credit risk, interest rate risk, extension risk, and prepayment risk, each of which are described in further detail below:
•Credit Risk — Credit risk refers to the possibility that the issuer of a debt security (i.e., the
borrower) will not be able to make payments of interest and principal when due. Changes in an issuer’s credit rating or the market’s perception of an
issuer’s creditworthiness may also affect the value of the Fund’s investment in that issuer. The degree of credit risk depends on both the financial condition of
the issuer and the terms of the obligation.
•Interest Rate Risk — The market value of bonds and other fixed-income securities changes in response to interest
rate changes and other factors. Interest rate risk is the risk that prices of bonds and other fixed-income securities will increase as interest rates fall and decrease as
interest rates rise.
The Fund may be subject to a greater risk of rising interest rates during a period of historically low interest rates. For example, if
interest rates increase by 1%, assuming a current portfolio duration of ten years, and all other factors being equal, the value of the Fund’s
investments would be expected to decrease by 10%. %. (Duration is a measure of the price sensitivity of a debt security or portfolio of debt securities to
relative changes in interest rates.) The magnitude of these fluctuations in the market price of bonds and other fixed-income securities is generally greater
for those securities with longer maturities. Fluctuations in the market price of the Fund’s investments will not affect interest income derived from
instruments already owned by the Fund, but will be reflected in the Fund’s net asset value. The Fund may lose money if short-term or long-term
interest rates rise sharply in a manner not anticipated by Fund management.
To the extent the Fund invests in debt securities that may be prepaid at the option of the obligor (such as mortgage-backed securities), the sensitivity of such
securities to changes in interest rates may increase (to the detriment of the Fund) when interest rates rise. Moreover, because rates on certain floating
rate debt securities typically reset only periodically, changes in prevailing interest rates (and particularly sudden and significant changes) can be
expected to cause some fluctuations in the net asset value of the Fund to the extent that it invests in floating rate debt securities.
32
2024 BlackRock Annual Report to Shareholders
Investment Objectives, Policies and Risks (continued)
Risk
Factors (continued)
These basic principles of bond prices also apply to U.S. Government securities. A security backed by the “full faith and credit” of the U.S. Government is
guaranteed only as to its stated interest rate and face value at maturity, not its current market price. Just like other fixed-income securities,
government-guaranteed securities will fluctuate in value when interest rates change.
A general rise in interest rates has the
potential to cause investors to move out of fixed-income securities on a large scale, which may increase redemptions from funds that hold large amounts of
fixed-income securities. Heavy redemptions could cause the Fund to sell assets at inopportune times or at a loss or depressed value and could hurt the
Fund’s performance.
•Extension Risk — When interest rates rise, certain obligations will be paid off by the obligor more slowly than anticipated, causing the value of these obligations to fall.
•Prepayment Risk — When interest rates fall, certain obligations will be paid off by the obligor more quickly than originally anticipated, and the Fund may have to invest the proceeds in securities with lower yields.
U.S. Government Obligations Risk: Certain securities in which the Fund may
invest, including securities issued by certain U.S. Government agencies and U.S. Government sponsored enterprises, are not guaranteed by the U.S. Government or
supported by the full faith and credit of the United States. In addition, circumstances could arise that could prevent the timely payment of interest or
principal on U.S. Government obligations, such as reaching the legislative “debt ceiling.” Such non-payment could result in losses to the Fund and substantial
negative consequences for the U.S. economy and the global financial system.
Mortgage- and Asset-Backed Securities Risks: Mortgage- and asset-backed
securities represent interests in “pools” of mortgages or other assets, including consumer loans or receivables held in trust. Mortgage- and
asset-backed securities are subject to credit, interest rate, prepayment and extension risks. These securities also are subject to risk of default on the
underlying mortgage or asset, particularly during periods of economic downturn. Small movements in interest rates (both increases and decreases) may quickly and significantly
reduce the value of certain mortgage-backed securities.
Corporate Loans Risk: Commercial banks and other financial institutions or
institutional investors make corporate loans to companies that need capital to grow or restructure. Borrowers generally pay interest on corporate loans at
rates that change in response to changes in market interest rates such as the Secured Overnight Financing Rate (“SOFR”) or the prime rates of U.S.
banks. As a result, the value of corporate loan investments is generally less exposed to the adverse effects of shifts in market interest rates than
investments that pay a fixed rate of interest. The market for corporate loans may be subject to irregular trading activity and wide bid/ask spreads. In addition, transactions in corporate loans may settle on a delayed basis. As a result, the proceeds from the sale of corporate loans may not be readily available to make additional investments or
to meet the Fund’s redemption obligations. To the extent the extended settlement process gives rise to short-term liquidity needs, the Fund may hold
additional cash, sell investments or temporarily borrow from banks and other lenders.
Money Market Securities Risk: If market conditions improve while the Fund has invested some or all of its assets in high quality money market securities, this strategy could result in reducing the potential gain from the market upswing, thus reducing the Fund’s opportunity to achieve its investment objective.
Foreign Securities Risk: Foreign investments often involve special risks not present in U.S. investments that can increase the chances that the Fund will lose money. These risks include:
•The Fund generally holds its foreign securities and cash in foreign
banks and securities depositories, which may be recently organized or new to the foreign custody business and may be subject to only limited or no regulatory
oversight.
•Changes in foreign currency exchange rates can affect the value of the Fund’s portfolio.
•The economies of certain foreign markets may not compare favorably with the economy of the United States with respect to such issues as growth of gross national product, reinvestment of capital, resources and balance of payments position.
•The governments of certain countries, or the U.S. Government with respect to certain countries, may prohibit or impose substantial restrictions through capital controls
and/or sanctions on foreign investments in the capital markets or certain industries in those countries, which may prohibit or restrict the ability to own or transfer currency, securities, derivatives or other assets.
•Many foreign governments do not
supervise and regulate stock exchanges, brokers and the sale of securities to the same extent as does the United States and may not have laws to protect investors that are
comparable to U.S. securities laws.
•Settlement and clearance procedures in certain foreign markets may
result in delays in payment for or delivery of securities not typically associated with settlement and clearance of U.S. investments.
•The Fund’s claims to recover foreign withholding taxes may not be successful, and if the likelihood of recovery of foreign withholding taxes materially decreases,
due to, for example, a change in tax regulation or approach in the foreign country, accruals in the Fund’s net asset value for such refunds may be written down
partially or in full, which will adversely affect the Fund’s net asset value.
Sovereign Debt Risk: Sovereign debt instruments are subject to the risk that a governmental entity may delay or refuse to pay interest or repay principal on its sovereign debt, due, for example, to cash flow problems, insufficient foreign currency reserves, political considerations, the relative size of the governmental entity’s debt
position in relation to the economy or the failure to put in place economic reforms required by the International Monetary Fund or other multilateral agencies.
Investment Objectives, Policies and Risks
33
Investment Objectives, Policies and Risks (continued)
Risk
Factors (continued)
Risks Associated with Writing Call Options: There are various risks associated
with the Option Strategy. The purchaser of an option written (sold) by the Fund has the right to purchase the security underlying the option at the exercise
price up to and including the expiration date of the option. Therefore, as the writer of a call option, the Fund forgoes, during the term of the option, the
opportunity to profit from increases in the market value of the underlying securities held by the Fund with respect to which the option was written above the
sum of the premium and the exercise price of the call. However the Fund has retained the risk of loss (net of premiums received) should the price of the Fund’s
portfolio securities decline. Consequently, as a result of the Option Strategy, the net asset value of the Fund may tend to decline over time.
A decision as to whether, when and how to use options involves the exercise of skill and judgment and even a well-conceived transaction
may be unsuccessful to some degree because of market developments or unexpected events.
Derivatives Risk: The Fund’s use of derivatives may increase its costs, reduce the Fund’s returns and/or increase volatility. Derivatives involve significant risks,
including:
•Leverage Risk — The Fund’s use of derivatives can magnify the Fund’s gains and losses.
Relatively small market movements may result in large changes in the value of a derivatives position and can result in losses that greatly exceed the amount originally
invested.
•Market Risk — Some derivatives are more sensitive to interest rate changes and market price fluctuations
than other securities. The Fund could also suffer losses related to its derivatives positions as a result of unanticipated market movements, which losses are potentially
unlimited. Finally, the Manager may not be able to predict correctly the direction of securities prices, interest rates and other economic factors, which could cause the
Fund’s derivatives positions to lose value.
•Counterparty Risk — Derivatives are also subject to counterparty risk, which is the risk that the other party
in the transaction will be unable or unwilling to fulfill its contractual obligation, and the related risks of having concentrated exposure to such a
counterparty.
•Illiquidity Risk — The possible lack of a liquid secondary market for derivatives and the resulting inability
of the Fund to sell or otherwise close a derivatives position could expose the Fund to losses and could make derivatives more difficult for the Fund to value
accurately.
•Operational Risk — The use of derivatives includes the risk of potential operational issues, including
documentation issues, settlement issues, systems failures, inadequate controls and human error.
•Legal Risk — The risk of insufficient documentation, insufficient capacity or authority of counterparty, or legality or enforceability of a contract.
•Volatility and Correlation Risk — Volatility is defined as the characteristic of a security, an index or a market to fluctuate significantly in price within a short time period. A risk of the Fund’s use of derivatives is that the fluctuations in their values may not correlate with the overall securities markets.
•Valuation Risk — Valuation for derivatives may not be readily available in the market. Valuation may be more difficult in times of market turmoil since many investors and market makers may be reluctant to purchase complex instruments or quote prices for them.
•Hedging Risk — Hedges are sometimes subject to imperfect matching between the derivative and the underlying security, and there can be no assurance that the Fund’s hedging transactions will be effective. The use of hedging may result in certain adverse tax consequences.
•Tax Risk — Certain aspects of the tax treatment of derivative instruments, including swap agreements and commodity-linked derivative instruments, are currently unclear and may be affected by changes in legislation, regulations or other legally binding authority. Such treatment may be less favorable than that given to a direct investment in an underlying asset and may adversely affect the timing, character and amount of income the Fund realizes from its investments.
Leverage Risk: The Fund’s use of leverage may increase or decrease from time to time in its discretion and the Fund may, in the future, determine not to use leverage.
The use of leverage creates an opportunity for increased common
share net investment income dividends, but also creates risks for the holders of common shares. The Fund cannot assure you that the use of leverage will result in a higher
yield on the common shares. Any leveraging strategy the Fund employs may not be successful.
Leverage involves risks and special considerations for common shareholders, including:
•the likelihood of greater volatility of net asset value, market price and dividend rate of the common shares than a comparable portfolio without leverage;
•the risk that fluctuations in interest rates or dividend rates on any leverage that the Fund must pay will reduce the return to the common shareholders;
•the effect of leverage in a declining market, which is likely to cause a greater decline in the net asset value of the common shares than if the Fund were not leveraged,
which may result in a greater decline in the market price of the common shares;
•leverage may increase operating costs, which may reduce total return.
Any decline in the net asset value of the Fund’s investments will be borne entirely by the holders of common shares. Therefore, if
the market value of the Fund’s portfolio declines, leverage will result in a greater decrease in net asset value to the holders of common shares than if
the Fund were not leveraged. This greater net asset value decrease will also tend to cause a greater decline in the market price for the common shares.
Illiquid Investments Risk: The Fund may invest without limitation in illiquid or less liquid investments or investments in which no secondary market is readily available or which are otherwise illiquid, including private placement securities. The Fund may not be able to readily dispose of such investments at prices that approximate those at which
the Fund could sell such investments if they were more widely traded and, as a result of such illiquidity, the Fund may have to sell other investments or
engage in borrowing
34
2024 BlackRock Annual Report to Shareholders
Investment Objectives, Policies and Risks (continued)
Risk
Factors (continued)
transactions if necessary to raise cash to meet its obligations. Limited liquidity can also affect the market price of investments, thereby adversely affecting the
Fund’s net asset value and ability to make dividend distributions. The financial markets in general, and certain segments of the mortgage-related
securities markets in particular, have in recent years experienced periods of extreme secondary market supply and demand imbalance, resulting in a loss of
liquidity during which market prices were suddenly and substantially below traditional measures of intrinsic value. During such periods, some investments could
be sold only at arbitrary prices and with substantial losses. Periods of such market dislocation may occur again at any time. Privately issued debt securities
are often of below investment grade quality, frequently are unrated and present many of the same risks as investing in below investment grade public debt
securities.
Tax Risk: Certain transactions entered into by the Fund are subject to special tax rules that may, among other things, (i) affect the character of gains and losses realized, (ii) disallow, suspend or otherwise limit the allowance of certain losses or deductions and (iii) accelerate the recognition of income without a corresponding receipt of
cash (with which to make the necessary distributions to satisfy distribution requirements applicable to regulated investment companies). Operation of these
rules could, therefore, affect the character, amount and timing of distributions to shareholders. Special tax rules also will require the Fund to mark to
market certain types of positions in its portfolio, including some of its call options (i.e., treat them as sold on the last day of the taxable year), and may
result in the recognition of income without a corresponding receipt of cash. The Fund intends to monitor its transactions, to make appropriate tax elections
and to make appropriate entries in its books and records to lessen the effect of these tax rules and avoid any possible disqualification for the favorable tax
treatment afforded regulated investment companies. In addition, there is a possibility that the Fund may make total distributions during a calendar or fiscal
year in an amount that exceeds the Fund’s net investment income and net realized capital gains for the relevant fiscal year. In such situations, the
amount by which the Fund’s total distributions exceed net investment income and net realized capital gains would generally be treated as a tax-free return of capital up
to the amount of a shareholder’s tax basis in his or her shares, with any amounts exceeding such basis treated as gain from the sale of shares.
Certain dividend income is eligible for taxation at a lower rate that is also applicable to long term capital gains in the hands of
individual shareholders. Certain tax rules may limit the Fund’s ability to designate dividends as long term capital gains eligible for taxation at
reduced rates. Short term capital gains and interest income on debt securities are not eligible for this reduced tax rate. In addition, gains from writing call options
generally will not be eligible for taxation at a reduced rate.
The Fund’s investments and the tax treatment of Fund distributions may be affected by future changes in tax laws and regulations. The impact of such legislation on
the Fund and its shareholders cannot be predicted.
Risk of Investing in the United States: Certain changes in the U.S.
economy, such as when the U.S. economy weakens or when its financial markets decline, may have an adverse effect on the securities to which the Fund has
exposure.
Market Risk and
Selection Risk: Market risk is the risk that one or more markets in which the Fund invests will go down in value, including the possibility that the markets will go down sharply and unpredictably. The value of a security or other asset may decline due to changes in general market conditions, economic trends or events that are not
specifically related to the issuer of the security or other asset, or factors that affect a particular issuer or issuers, exchange, country, group of
countries, region, market, industry, group of industries, sector or asset class. Local, regional or global events such as war, acts of terrorism, the spread of
infectious illness or other public health issues like pandemics or epidemics, recessions, or other events could have a significant impact on the Fund and its
investments. Selection risk is the risk that the securities selected by Fund management will underperform the markets, the relevant indices or the securities
selected by other funds with similar investment objectives and investment strategies. This means you may lose money.
An outbreak of an infectious coronavirus (COVID-19) that was
first detected in December 2019 developed into a global pandemic that has resulted in numerous disruptions in the market and has had significant economic
impact leaving general concern and uncertainty. Although vaccines have been developed and approved for use by various governments, the duration of the pandemic
and its effects cannot be predicted with certainty. The impact of this coronavirus, and other epidemics and pandemics that may arise in the future, could affect the economies
of many nations, individual companies and the market in general ways that cannot necessarily be foreseen at the present time.
Shareholder Activism Risk: Shareholder activism involving closed-end funds has
recently been increasing. Shareholder activism can take many forms, including engaging in public campaigns to demand that the Fund consider significant
transactions such as a tender offer, merger or liquidation or to attempt to influence the Fund’s corporate governance and/or management, commencing proxy
contests to attempt to elect the activists’ representatives or others to the Fund’s Board of Directors, or to seek other actions such as a
termination of the Fund’s investment advisory contract with its current investment manager or commencing litigation. If the Fund becomes the subject of
shareholder activism, then management and the Board may be required to divert significant resources and attention to respond to the activist and the Fund may
incur substantial costs defending against such activism if management and the Board determine that the activist’s demands are not in the best interest of
the Fund. Further, the Fund’s share price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any
shareholder activism.
Investment Objectives, Policies and Risks
35
Automatic Dividend Reinvestment Plan
Pursuant to
EGF’s Dividend Reinvestment Plan (the “Reinvestment Plan”), Common Shareholders
are automatically enrolled to have all distributions of dividends and capital gains and other distributions reinvested by Computershare Trust Company, N.A.
(the “Reinvestment Plan Agent”) in the Fund’s Common Shares pursuant to the
Reinvestment Plan. Shareholders who do not participate in the Reinvestment Plan will receive all distributions in cash paid by check and mailed directly to the
shareholders of record (or if the shares are held in street name or other nominee name, then to the nominee) by the Reinvestment Plan Agent, which serves as
agent for the shareholders in administering the Reinvestment Plan.
After EGF declares a dividend or determines to make a capital gain or other distribution, the Reinvestment Plan Agent will acquire shares
for the participants’ accounts, depending upon the following circumstances, either (i) through receipt of unissued but authorized shares from the Fund
(“newly issued shares”) or (ii) by purchase of outstanding shares on the open market or on the Fund’s primary exchange (“open-market purchases”). If, on the dividend payment date, the net asset
value (“NAV”) per share is equal to or less than the market price per share plus estimated brokerage commissions (such condition often referred to
as a “market premium”), the Reinvestment Plan Agent will invest the dividend amount in newly issued shares acquired on behalf of the participants.
The number of newly issued shares to be credited to each participant’s account will be determined by dividing the dollar amount of the dividend by the
NAV on the date the shares are issued. However, if the NAV is less than 95% of the market price on the dividend payment date, the dollar amount of the dividend
will be divided by 95% of the market price on the dividend payment date. If, on the dividend payment date, the NAV is greater than the market price per share
plus estimated brokerage commissions (such condition often referred to as a “market discount”), the Reinvestment Plan Agent will invest the
dividend amount in shares acquired on behalf of the participants in open-market purchases. If the Reinvestment Plan Agent is unable to invest the full dividend
amount in open-market purchases, or if the market discount shifts to a market premium during the purchase period, the Reinvestment Plan Agent will invest any
un-invested portion in newly issued shares. Investments in newly issued shares made in this manner would be made pursuant to the same process described above
and the date of issue for such newly issued shares will substitute for the dividend payment date.
You may elect not to participate in the Reinvestment Plan and to receive all
dividends in cash by contacting the Reinvestment Plan Agent, at the address set forth below.
Participation in the Reinvestment Plan is completely voluntary and may be terminated or resumed at any time without penalty by notice if received and processed by the
Reinvestment Plan Agent prior to the dividend record date. Additionally, the Reinvestment Plan Agent seeks to process notices received after the record date
but prior to the payable date and such notices often will become effective by the payable date. Where late notices are not processed by the applicable payable
date, such termination or resumption will be effective with respect to any subsequently declared dividend or other distribution.
The Reinvestment Plan Agent’s fees for the handling of the
reinvestment of distributions will be paid by the Fund. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to
the Reinvestment Plan Agent’s open-market purchases in connection with the reinvestment of all distributions. The automatic reinvestment of all distributions will not
relieve participants of any U.S. federal, state or local income tax that may be payable on such dividends or distributions.
The Fund reserves the right to amend or terminate the Reinvestment Plan. There is no direct service charge to participants in the Reinvestment Plan; however, the Fund
reserves the right to amend the Reinvestment Plan to include a service charge payable by the participants. Participants in EGF that request a sale of shares
are subject to a $0.02 per share sold brokerage commission. All correspondence concerning the Reinvestment Plan should be directed to Computershare Trust
Company, N.A. through the internet at computershare.com/blackrock, or in writing to Computershare, P.O. Box 43006, Providence, RI 02940-3078, Telephone: (800)
699-1236. Overnight correspondence should be directed to the Reinvestment Plan Agent at Computershare, 150 Royall Street, Suite 101, Canton, MA
02021.
36
2024 BlackRock Annual Report to Shareholders
Director and Officer Information
| |
| |
|
Principal Occupation(s) During Past 5 Years |
Number of BlackRock-Advised
Registered Investment Companies
(“RICs”) Consisting of Investment
Portfolios (“Portfolios”) Overseen |
Public Company and Other
Investment Company
Directorships Held During
Past 5 Years |
| |
Chair of the Board (Since
2022)
Director
(Since 2007) |
Dean, Columbia Business School from 2004 to 2019;
Faculty member, Columbia Business School since 1988. |
67 RICs consisting of 102 Portfolios |
ADP (data and information services) from 2004 to 2020; Metropolitan Life Insurance Company (insurance); TotalEnergies SE (multi-energy) |
| |
Vice Chair of the Board
(Since 2022)
Director
(Since 2007) |
Baker Foundation Professor and George Fisher Baker Jr.
Professor of Business Administration, Emeritus, Harvard
Business School since 2022; George Fisher Baker Jr.
Professor of Business Administration, Harvard Business
School from 2008 to 2022; Deputy Dean for Academic
Affairs from 2006 to 2010; Chairman of the Finance Unit,
from 2005 to 2006; Senior Associate Dean and Chairman
of the MBA Program from 1999 to 2005; Member of the
faculty of Harvard Business School since 1981. |
69 RICs consisting of 104 Portfolios |
|
| |
|
Advisor, U.S. Department of the Treasury from 2014 to
2015; President, Retirement Plan Services, for T. Rowe
Price Group, Inc. from 2007 to 2012; executive positions
within Fidelity Investments from 1989 to 2007. |
69 RICs consisting of 104 Portfolios |
Unum (insurance); The Hanover Insurance Group (Board Chair); Huntsman Corporation (Lead Independent Director and non-Executive Vice Chair of the Board) (chemical products) |
| |
|
Chief Financial Officer, Intel Foundry since 2024; Vice
Chairman, Kioxia, Inc. from 2019 to 2024; Chief Financial
Officer, Xilinx, Inc. from 2016 to 2019; Corporate
Controller, Xilinx, Inc. from 2008 to 2016. |
67 RICs consisting of 102 Portfolios |
|
| |
|
Lieutenant General, Inspector General of the United States
Air Force from 2017 to 2019; Lieutenant General, Assistant
Vice Chief of Staff and Director, Air Staff, United States Air
Force from 2016 to 2017; Major General, Commander,
22nd Air Force, AFRC, Dobbins Air Reserve Base, Georgia
from 2014 to 2016; Pilot, United Airlines from 1990 to
2020. |
67 RICs consisting of 102 Portfolios |
KULR Technology Group, Inc. in 2021; The Boeing Company (airplane manufacturer) |
| |
|
President and Chief Operating Officer, Cintas Corporation
from 2008 to 2018. |
67 RICs consisting of 102 Portfolios |
PulteGroup, Inc. (home construction); Vestis Corporation (uniforms and facilities services) |
| |
|
Chief Executive Officer, Chief Investment Officer and
various other positions, National Railroad Retirement
Investment Trust from 2003 to 2016; Associate Vice
President for Treasury Management, The George
Washington University from 1999 to 2003; Assistant
Treasurer, Episcopal Church of America from 1995 to
1999. |
69 RICs consisting of 104 Portfolios |
PennyMac Mortgage Investment Trust |
Director and Officer Information
37
Director and Officer Information (continued)
Independent Directors(a) (continued) |
| |
Position(s) Held
(Length of Service)(c) |
Principal Occupation(s) During Past 5 Years |
Number of BlackRock-Advised
Registered Investment Companies
(“RICs”) Consisting of Investment
Portfolios (“Portfolios”) Overseen |
Public Company and Other Investment Company
Directorships Held
During Past 5 Years |
| |
|
Trustee of Denison University since 2020; Consultant,
Posit PBC (enterprise data science) since 2020; Director,
ScotiaBank (U.S.) from 2020 to 2023; Chairman, Chief
Executive Officer and President of OppenheimerFunds,
Inc. from 2015, 2014 and 2013, respectively to 2019;
Trustee, President and Principal Executive Officer of
104 OppenheimerFunds funds from 2014 to 2019;
Portfolio manager of various OppenheimerFunds fixed
income mutual funds from 1986 to 2014. |
69 RICs consisting of 104 Portfolios |
Trustee of 104 OppenheimerFunds funds from 2014 to 2019 |
Interested Directors(a)(e) |
| |
|
Principal Occupation(s) During Past 5 Years |
Number of BlackRock-Advised
Registered Investment Companies
(“RICs”) Consisting of Investment
Portfolios (“Portfolios”) Overseen |
Public Company and Other
Investment Company
Directorships Held During
Past 5 Years |
| |
|
Vice Chairman of BlackRock, Inc. since 2019; Member of
BlackRock’s Global Executive and Global Operating
Committees; Co-Chair of BlackRock’s Human Capital
Committee; Senior Managing Director of BlackRock, Inc.
from 2010 to 2019; oversaw BlackRock’s Strategic Partner
Program and Strategic Product Management Group from
2012 to 2019; Member of the Board of Managers of
BlackRock Investments, LLC from 2011 to 2018; Global
Head of BlackRock’s Retail and iShares® businesses from
2012 to 2016. |
95 RICs consisting of 268 Portfolios |
|
| |
Director
(Since 2015)
President and Chief
Executive Officer
(Since 2010) |
Managing Director of BlackRock, Inc. since 2009; Head of
BlackRock Global Accounting and Product Services since
2009; Advisory Director of Family Resource Network
(charitable foundation) since 2009. |
97 RICs consisting of 270 Portfolios |
|
| |
The address of each Director is c/o BlackRock, Inc., 50 Hudson Yards, New York, New York 10001. |
| |
Each Independent Director holds office until his or her successor is duly elected and qualifies or until his or her earlier death, resignation, retirement or removal as
provided by the Fund’s by-laws or charter or statute, or until
December 31 of the year in which he or she turns 75. Directors who are “interested persons,” as defined in the Investment Company Act serve until their successor
is duly elected and qualifies or until their earlier death, resignation, retirement or
removal as provided by the Fund’s by-laws or statute, or until December 31 of the year in which they turn 72. The Board may determine to extend the terms of Independent Directors on a case-by-case basis, as appropriate. |
| |
Following the combination of Merrill Lynch Investment Managers, L.P. (“MLIM”) and BlackRock, Inc. in September 2006, the various legacy MLIM and legacy
BlackRock fund boards were realigned and consolidated into three new fund
boards in 2007. Certain Independent Directors first became members of the boards of other legacy MLIM or legacy BlackRock funds as follows: R. Glenn Hubbard, 2004 and W. Carl Kester, 1995. |
| |
Ms. Egan, Dr. Kester, Ms. Lynch, Mr. Steinmetz and Mr. Perlowski are also trustees of the BlackRock Credit Strategies Fund and BlackRock Private Investments
Fund. |
| |
Mr. Fairbairn and Mr. Perlowski are both “interested persons,” as defined in the 1940 Act, of the Corporation based on their positions with BlackRock, Inc.
and its affiliates. Mr. Fairbairn and Mr. Perlowski are also board members of the
BlackRock Multi-Asset Complex. |
38 2024 BlackRock
Annual Report to Shareholders
Director and Officer Information (continued)
Officers Who Are Not Directors(a) |
| |
Position(s) Held
(Length of Service) |
Principal Occupation(s) During Past 5 Years |
| |
Vice President
(Since 2015) |
Member of BlackRock’s Global Operating Committee since 2023; Managing Director of BlackRock, Inc. since 2015. |
| |
Chief Financial Officer
(Since 2021) |
Managing Director of BlackRock, Inc. since 2019; Executive Vice President of PIMCO from 2016 to 2019. |
| |
|
Managing Director of BlackRock, Inc. since 2007. |
| |
Chief Compliance Officer
(Since 2023) |
Managing Director of BlackRock, Inc. since 2018; Chief Compliance Officer of the BlackRock-advised funds in the
BlackRock Multi-Asset Complex, the BlackRock Fixed-Income Complex and the iShares Complex since
2023; Deputy Chief Compliance Officer for the BlackRock-advised funds in the
BlackRock Multi-Asset Complex, the BlackRock Fixed- Income Complex and the iShares
Complex from 2014 to 2023. |
| |
|
Managing Director of BlackRock, Inc. since 2018. |
| |
The address of each Officer is c/o BlackRock, Inc., 50 Hudson Yards, New York, New York 10001. |
| |
Officers of the Fund serve at the pleasure of the Board. |
Director and Officer Information
39
Proxy Results
The Annual Meeting of Shareholders was held on July 26, 2024 for
shareholders of record on May 28, 2024, to elect director nominees for BlackRock Enhanced Government Fund, Inc. There were no broker non-votes with regard to the
Fund.
Shareholders elected the Class II Directors as
follows:
For the Fund listed above, Directors whose term of office continued
after the Annual Meeting of Shareholders because they were not up for election are Cynthia L. Egan, Robert Fairbairn, Lorenzo A. Flores, Stayce D. Harris, J. Phillip
Holloman, Arthur P. Steinmetz and Catherine A. Lynch.
The Fund is listed for trading on the NYSE and has filed with the NYSE its annual chief executive officer certification regarding compliance with the NYSE’s listing standards. The Fund filed with the SEC the certification of its chief executive officer and chief financial officer required by Section 302 of the Sarbanes-Oxley Act.
Environmental, Social and Governance (“ESG”)
Integration
Although the Fund does not seek
to implement a specific sustainability objective, strategy or process unless otherwise disclosed, Fund management will consider ESG factors as part of the
investment process for the Fund. Fund management views ESG integration as the practice of incorporating financially material ESG data or information into
investment processes with the objective of enhancing risk-adjusted returns. These ESG considerations will vary depending on the Fund’s particular investment strategies and may include consideration of third-party research as well as consideration of proprietary BlackRock research across the ESG risks and opportunities regarding an issuer. The
ESG characteristics utilized in the Fund’s investment process are anticipated to evolve over time and one or more characteristics may not be relevant with respect to all issuers that are eligible for investment. Certain of these considerations may affect the
Fund’s exposure to certain companies or industries. While Fund management views ESG considerations as having the potential to contribute to the Fund’s long-term performance, there is no guarantee that such results will be achieved.
The Fund’s policy is to make monthly distributions to shareholders. In order to provide shareholders with a more stable level of
dividend distributions, the Fund employs a managed distribution plan (the "Plan"), the goal of which is to provide shareholders with consistent and
predictable cash flows by setting distribution rates based on expected long-term returns of the Fund.
The distributions paid by the Fund for any particular month
may be more or less than the amount of net investment income earned by the Fund during such month. Furthermore, the final tax characterization of
distributions is determined after the year-end of the Fund and is reported in the Fund’s annual report to shareholders. Distributions can be
characterized as ordinary income, capital gains and/or return of capital. The Fund’s taxable net investment income and net realized capital gains (“taxable income”) may not be sufficient to support the level of distributions paid. To the extent that distributions exceed the Fund’s current and accumulated earnings and profits, the
excess may be treated as a non-taxable return of capital.
A return of capital is a return of a portion of an investor’s original investment. A return of capital is not expected to be
taxable, but it reduces a shareholder’s tax basis in his or her shares, thus reducing any loss or increasing any gain on a subsequent disposition by the
shareholder of his or her shares. It is possible that a substantial portion of the distributions paid during a calendar year may ultimately be classified as
return of capital for U.S. federal income tax purposes when the final determination of the source and character of the distributions is made.
Such distributions, under certain circumstances, may exceed
the Fund’s total return performance. When total distributions exceed total return performance for the period, the difference reduces the
Fund’s total assets and net asset value (“NAV”) per share and, therefore, could have the effect of increasing the Fund’s expense ratio and reducing the amount of assets the Fund has available for long term investment.
The Fund does not make available copies of its Statement of Additional Information because the
Fund’s shares are not continuously offered, which means that the Statement of Additional Information of the Fund has not been updated after completion of the Fund’s offerings and the information contained in the Fund’s Statement of
Additional Information may have become outdated.
The following information is a summary of certain changes since December 31, 2023. This information may not reflect all of the changes that have occurred since you purchased the Fund.
Except if noted otherwise herein, there were no changes to the Fund’s charter or by-laws that would delay or prevent a change of control of the Fund that were not approved by the shareholders. Except if noted otherwise herein, there have been no changes in the persons who are primarily responsible for the day-to-day management of the
Fund’s
portfolios.
40 2024 BlackRock
Annual Report to Shareholders
Additional Information (continued)
General Information (continued)
In accordance with Section 23(c) of the Investment Company Act of 1940, the Fund may from time
to time purchase shares of its common stock in the open market or in private transactions.
Quarterly performance, shareholder reports, current net asset
value and other information regarding the Fund may be found on BlackRock’s website, which can be accessed at blackrock.com. Any reference to BlackRock’s website in this report is intended to allow
investors public access to information regarding the Fund and does not, and is not intended to, incorporate BlackRock’s website in this report.
Shareholders can sign up for e-mail notifications of quarterly
statements, annual and semi-annual shareholder reports by enrolling in the electronic delivery program. Electronic copies of shareholder reports are available on
BlackRock’s website.
To enroll in electronic
delivery:
Shareholders Who Hold Accounts with
Investment Advisers, Banks or Brokerages:
Please contact your
financial adviser. Please note that not all investment advisers, banks or brokerages may offer this service.
The Fund will mail only one copy of shareholder documents, annual and semi-annual reports, Rule 30e-3 notices and proxy statements, to shareholders with multiple accounts
at the same address. This practice is commonly called “householding” and is intended to reduce expenses and eliminate duplicate mailings of
shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing
of these documents to be combined with those for other members of your household, please call the Fund at (800) 882-0052.
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings
with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT is available on the SEC’s website at sec.gov. Additionally, the Fund makes its portfolio holdings for the first and third quarters
of each fiscal year available at blackrock.com/fundreports.
Availability of Proxy Voting Policies, Procedures and Voting
Records
A description of the policies and
procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information about how the Fund voted proxies relating to
securities held in the Fund’s portfolio during the most recent 12-month period ended June 30
is available without charge, upon request (1) by calling (800) 882-0052; (2) on the BlackRock website at blackrock.com; and (3) on the SEC’s website at sec.gov.
Availability of Fund Updates
BlackRock will update performance and certain other data for the
Fund on a monthly basis on its website in the “Closed-end Funds” section of blackrock.com as well as certain other material information as necessary from time to time. Investors and
others are advised to check the website for updated performance information and the release of other material information about the Fund. This reference to
BlackRock’s website is intended to allow investors public access to information regarding the Fund and does not, and is not intended to, incorporate BlackRock’s
website in this report.
Fundamental Periodic
Repurchase Policy
The Fund has adopted an
“interval fund” structure pursuant to Rule 23c-3 under the 1940 Act as a fundamental policy. As an interval fund, the Fund will make annual
repurchase offers at net asset value (less a repurchase fee not to exceed 2%) to all Fund shareholders. The percentage of outstanding shares that the Fund can
repurchase in each offer will be established by the Fund’s Board shortly before the commencement of each offer and will be between 5% and 25% of the Fund’s then
outstanding shares.
The Fund has adopted the following
fundamental policies regarding periodic repurchases:
(a) The
Fund will make repurchase offers at periodic intervals pursuant to Rule 23c-3 under the 1940 Act.
(b) The periodic interval between repurchase request deadlines will be approximately 12 months.
(c) The maximum number of days between a repurchase request
deadline and the next repurchase pricing date will be 14 days; provided that if the 14th day after a repurchase request deadline is not a business day, the repurchase pricing
date shall be the next business day.
The
Board may place such conditions and limitations on a repurchase offer as may be permitted under Rule 23c-3. Repurchase offers may be suspended or postponed under certain
circumstances, as provided in Rule 23c-3.
Additional Information
41
Additional Information (continued)
Fundamental Periodic Repurchase Policy (continued)
During the fiscal year ended December 31, 2024, the Fund conducted a repurchase offer for up to 5%
of its outstanding Common Shares, pursuant to Rule 23c-3 under the 1940 Act, as summarized in the following table:
Number of
Repurchase Offers |
Number of
Shares Repurchased |
Number of
Shares Tendered |
| |
|
|
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former fund investors and individual clients (collectively, “Clients”) and to safeguarding
their non-public personal information. The following information is provided to help you understand what personal information BlackRock collects, how we
protect that information and why in certain cases we share such information with select parties.
If you are located in a jurisdiction where specific laws, rules
or regulations require BlackRock to provide you with additional or different privacy-related rights beyond what is set forth below, then BlackRock will comply with those
specific laws, rules or regulations.
BlackRock obtains or verifies personal non-public information from and about you from different sources, including the following: (i)
information we receive from you or, if applicable, your financial intermediary, on applications, forms or other documents; (ii) information about your
transactions with us, our affiliates, or others; (iii) information we receive from a consumer reporting agency; and (iv) from visits to our websites.
BlackRock does not sell or disclose to non-affiliated third
parties any non-public personal information about its Clients, except as permitted by law or as is necessary to respond to regulatory requests or to service
Client accounts. These non-affiliated third parties are required to protect the confidentiality and security of this information and to use it only for its intended
purpose.
We may share information with our
affiliates to service your account or to provide you with information about other BlackRock products or services that may be of interest to you. In addition,
BlackRock restricts access to non-public personal information about its Clients to those BlackRock employees with a legitimate business need for the
information. BlackRock maintains physical, electronic and procedural safeguards that are designed to protect the non-public personal information of its
Clients, including procedures relating to the proper storage and disposal of such information.
Fund and Service Providers
Investment Adviser
BlackRock Advisors, LLC
Wilmington, DE 19809
Accounting Agent and Custodian
State Street Bank and Trust Company
Boston, MA 02114
Computershare Trust Company, N.A.
Canton, MA 02021
Independent Registered Public
Accounting Firm
Deloitte & Touche LLP
Boston, MA 02110
Willkie Farr & Gallagher LLP
New York, NY 10019
100 Bellevue Parkway
Wilmington, DE
19809
42
2024 BlackRock Annual Report to Shareholders
Glossary of Terms Used in this Report
| |
| |
Collateralized Loan Obligation
|
| |
Secured Overnight Financing Rate |
| |
|
Glossary of Terms Used in this Report
43
Want to know
more?
blackrock.com |
800-882-0052
This report is intended for current holders. It is not a prospectus. Past performance results shown in this report should not be considered a representation of future performance. Statements and other information herein are as dated and are subject to change.
(b) Not Applicable
| Item 2 – |
Code of Ethics – The registrant (or the “Fund”) has adopted a code of ethics, as of the end of
the period covered by this report, applicable to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. During the period covered by this
report, the code of ethics was amended to update certain information and to make other non-material changes. During the period covered by this report, there have been no waivers granted under the code of
ethics. The registrant undertakes to provide a copy of the code of ethics to any person upon request, without charge, who calls 1-800-882-0052, option 4. |
| Item 3 – |
Audit Committee Financial Expert – The registrant’s board of directors (the “board of
directors”), has determined that (i) the registrant has the following audit committee financial experts serving on its audit committee and (ii) each audit committee financial expert is independent: |
Lorenzo A. Flores
Catherine A.
Lynch
Arthur P. Steinmetz
Under applicable securities laws, a person determined to be an audit committee financial expert will not be deemed an “expert” for
any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an
audit committee financial expert does not impose on such person any duties, obligations, or liabilities greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and board of directors in the
absence of such designation or identification. The designation or identification of a person as an audit committee financial expert does not affect the duties, obligations, or liability of any other member of the audit committee or board of
directors.
| Item 4 – |
Principal Accountant Fees and Services |
The following table presents fees billed by Deloitte & Touche LLP (“D&T”) in each of the last two fiscal years for the
services rendered to the Fund:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(a) Audit Fees |
|
(b) Audit-Related Fees1 |
|
(c) Tax Fees2 |
|
(d) All Other Fees |
| Entity Name |
|
Current
Fiscal
Year
End |
|
Previous
Fiscal
Year
End |
|
Current
Fiscal
Year
End |
|
Previous
Fiscal
Year
End |
|
Current
Fiscal
Year
End |
|
Previous
Fiscal
Year
End |
|
Current
Fiscal
Year
End |
|
Previous
Fiscal
Year
End |
| BlackRock Enhanced Government Fund, Inc. |
|
$37,230 |
|
$37,230 |
|
$0 |
|
$0 |
|
$13,200 |
|
$13,208 |
|
$0 |
|
$407 |
The following table presents fees billed by D&T that were required to be approved by the registrant’s
audit committee (the “Committee”) for services that relate directly to the operations or financial reporting of the Fund and that are rendered on behalf of BlackRock Advisors, LLC
(the “Investment Adviser” or “BlackRock”) and entities controlling, controlled by, or under common control with BlackRock (not including
any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) that provide ongoing services to the Fund (“Affiliated Service
Providers”):
|
|
|
|
|
| |
|
Current Fiscal Year End |
|
Previous Fiscal Year
End |
| (b) Audit-Related Fees1 |
|
$0 |
|
$0 |
| (c) Tax Fees2 |
|
$0 |
|
$0 |
| (d) All Other Fees3 |
|
$2,149,000 |
|
$2,154,000 |
1 The nature of the services includes assurance
and related services reasonably related to the performance of the audit or review of financial statements not included in Audit Fees, including accounting consultations, agreed-upon procedure reports, attestation reports, comfort letters, out-of-pocket expenses and internal control reviews not required by regulators.
2 The nature of the services includes tax compliance and/or tax preparation, including
services relating to the filing or amendment of federal, state or local income tax returns, regulated investment company qualification reviews, taxable income and tax distribution calculations.
3 Non-audit fees of $2,149,000 and
$2,154,000 for the current fiscal year and previous fiscal year, respectively, were paid to the Fund’s principal accountant in their entirety by BlackRock, in connection with services provided to the Affiliated Service Providers of the Fund and
of certain other funds sponsored and advised by BlackRock or its affiliates for a service organization review and an accounting research tool subscription. These amounts represent aggregate fees paid by BlackRock and were not allocated on a per fund
basis.
(e)(1) Audit Committee Pre-Approval Policies and Procedures:
The Committee has adopted policies and procedures with regard to the pre-approval of services. Audit,
audit-related and tax compliance services provided to the registrant on an annual basis require specific pre-approval by the Committee. The Committee also must approve other
non-audit services provided to the registrant and those non-audit services provided to the Investment Adviser and Affiliated Service Providers that relate directly to the operations and the financial reporting
of the registrant. Certain of these non-audit services that the Committee believes are (a) consistent with the SEC’s auditor independence rules and (b) routine and recurring services that will not impair
the independence of the independent accountants may be approved by the Committee without consideration on a specific case-by-case basis (“general pre-approval”). The term of any general pre-approval is 12 months from the date of the pre-approval, unless the Committee provides
for a different period. Tax or other non-audit services provided to the registrant which have a direct impact on the operations or financial reporting of the registrant will only be deemed pre-approved provided that any individual project does not
exceed $10,000 attributable to the registrant or $50,000 per project. For this purpose, multiple projects will be aggregated to determine if they exceed the previously mentioned cost levels.
Any proposed services exceeding the pre-approved cost levels will require specific pre-approval by the Committee, as will any other services not subject to general pre-approval (e.g., unanticipated but permissible services). The Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting. At this meeting, an analysis of such services is presented to the Committee for ratification. The Committee may delegate to the Committee Chairman the authority to approve the
provision of and fees for any specific engagement of permitted non-audit services, including services exceeding pre-approved cost levels.
(e)(2) None of the services described in each of Items 4(b) through (d) were approved by the
Committee pursuant to the de minimis exception in paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not Applicable
(g) The aggregate non-audit fees, defined as the sum of the fees shown under “Audit-Related Fees,” “Tax Fees” and “All Other Fees,” paid to the accountant for services rendered by the
accountant to the registrant, the Investment Adviser and the Affiliated Service Providers were:
|
|
|
|
|
| Entity Name |
|
Current Fiscal Year End |
|
Previous Fiscal Year End |
| BlackRock Enhanced Government Fund, Inc. |
|
$13,200 |
|
$13,615 |
Additionally, the amounts billed by D&T in connection with services provided to the Affiliated
Service Providers of the Fund and of other funds sponsored or advised by BlackRock or its affiliates during the current and previous fiscal years for a service organization review and an accounting research tool subscription were:
|
|
|
| Current Fiscal Year End |
|
Previous Fiscal Year End |
|
$2,149,000 |
|
$2,154,000 |
These amounts represent aggregate fees paid by BlackRock and were not allocated on a per fund basis.
(h) The Committee has considered and determined that the provision of non-audit services
that were rendered to the Investment Adviser and the Affiliated Service Providers that were not pre-approved pursuant to paragraph (c)(7)(ii) of
Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.
(i) Not Applicable
(j) Not
Applicable
| Item 5 – |
Audit Committee of Listed Registrant |
(a) The following individuals are members of the registrant’s separately designated standing audit committee established in accordance
with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(58)(A)):
Lorenzo A. Flores
J. Phillip Holloman
Catherine A.
Lynch
Arthur P. Steinmetz
(b) Not Applicable
(a) The registrant’s Schedule of Investments is included as part of the Report to Stockholders filed under Item 1(a) of this
Form.
(b) Not Applicable due to no such divestments during the semi-annual period covered since the
previous Form N-CSR filing.
| Item 7 – |
Financial Statements and Financial Highlights for Open-End Management
Investment Companies – Not Applicable |
| Item 8 – |
Changes in and Disagreements with Accountants for Open-End Management
Investment Companies – Not Applicable |
| Item 9 – |
Proxy Disclosures for Open-End Management Investment Companies –
Not Applicable |
| Item 10 – |
Remuneration Paid to Directors, Officers, and Others of Open-End
Management Investment Companies – Not Applicable |
| Item 11 – |
Statement Regarding Basis for Approval of Investment Advisory Contract – Not Applicable
|
| Item 12 – |
Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies – The board of directors has delegated the voting of proxies for the Fund’s portfolio securities to the Investment Adviser pursuant to the Closed-End Fund Proxy Voting
Policy. The Investment Adviser has adopted the BlackRock Active Investment Stewardship - Global Engagement and Voting Guidelines (the “BAIS Guidelines”) with respect to certain funds, including the Fund. Copies of the Closed-End Fund Proxy Voting Policy and the BAIS Guidelines are attached as Exhibit 99.PROXYPOL. Information on how the Fund voted proxies relating to portfolio securities
during the most recent 12-month period ended June 30 is available (i) without charge, upon request, by calling (800) 882-0052, (ii) at www.blackrock.com
and (iii) on the SEC’s website at http://www.sec.gov. |
| Item 13 – |
Portfolio Managers of Closed-End Management Investment
Companies |
(a)(1) As of the date of filing this Report:
The registrant is managed by a team of investment professionals comprised of Scott MacLellan, CFA, CMT, Managing Director at BlackRock and
Akiva Dickstein, Managing Director at BlackRock. Each is jointly responsible for the day-to-day management of the registrant’s portfolio, which includes setting the
registrant’s overall investment strategy, overseeing the management of the registrant and selection of its investments. Messrs. MacLellan and Dickstein have been part of the registrant’s portfolio management team since 2018 and 2020,
respectively.
|
|
|
| Portfolio Manager |
|
Biography |
| Scott MacLellan, CFA, CMT |
|
Managing Director of BlackRock, Inc. since 2022; Director of BlackRock, Inc. from 2010 to 2021; Vice President
of BlackRock, Inc. from 2007 to 2009. |
| Akiva Dickstein |
|
Managing Director of BlackRock since 2009; Managing Director of Merrill Lynch Investment Managers, L.P. from
2003 to 2009 and Head of the U.S. Rates & Structured Credit Research Group. |
(a)(2) As of December 31, 2024:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(ii) Number of
Other Accounts Managed
and Assets by Account Type |
|
(iii) Number of Other Accounts and
Assets for Which Advisory Fee is
Performance-Based |
| (i) Name of Portfolio Manager |
|
Other
Registered
Investment
Companies |
|
Other Pooled
Investment
Vehicles |
|
Other Accounts |
|
Other
Registered
Investment
Companies |
|
Other Pooled
Investment
Vehicles |
|
Other
Accounts |
| Scott MacLellan, CFA, CMT |
|
10 |
|
15 |
|
122 |
|
0 |
|
2 |
|
3 |
| |
|
$9.41 Billion |
|
$3.02 Billion |
|
$44.78 Billion |
|
$0 |
|
$118.3 Million |
|
$1.02 Billion |
| Akiva Dickstein |
|
17 |
|
21 |
|
196 |
|
0 |
|
0 |
|
3 |
| |
|
$21.16 Billion |
|
$6.41 Billion |
|
$85.24 Billion |
|
$0 |
|
$0 |
|
$1.02 Billion |
(iv) Portfolio Manager Potential Material Conflicts of Interest
BlackRock has built a professional working environment, firm-wide compliance culture and compliance procedures and systems designed to protect
against potential incentives that may favor one account over another. BlackRock has adopted policies and procedures that address the allocation of investment opportunities, execution of portfolio transactions, personal trading by employees and other
potential conflicts of interest that are designed to ensure that all client accounts are treated equitably over time. Nevertheless, BlackRock furnishes investment management and advisory services to numerous clients in addition to the Fund, and
BlackRock may, consistent with applicable law, make investment recommendations to other clients or accounts (including accounts which are hedge funds or have performance or higher fees paid to BlackRock, or in which portfolio managers have a
personal interest in the receipt of such fees), which may be the same as or different from those made to the Fund. In addition, BlackRock, Inc., its affiliates and significant shareholders and any officer, director, shareholder or employee may or
may not have an interest in the securities whose purchase and sale BlackRock recommends to the Fund. BlackRock, Inc., or any of its affiliates or significant shareholders, or any officer, director, shareholder, employee or any member of their
families may take different actions than those recommended to the Fund by BlackRock with respect to the same securities. Moreover, BlackRock may refrain from rendering any advice or services concerning securities of companies of which any of
BlackRock, Inc.’s (or its affiliates’ or significant shareholders’) officers, directors or employees are directors or officers, or companies as to which BlackRock, Inc. or any of its affiliates or significant shareholders or the
officers, directors and employees of any of them has any substantial economic interest or possesses material non-public information. Certain portfolio managers also may manage accounts whose
investment strategies may at times be opposed to the strategy utilized for a fund. It should also be noted that Messrs. MacLellan and Dickstein may be managing hedge fund and/or long only accounts, or may be part of a team managing hedge fund and/or
long only accounts, subject to incentive fees. Messrs. MacLellan and Dickstein may therefore be entitled to receive a portion of any incentive fees earned on such accounts.
As a fiduciary, BlackRock owes a duty of loyalty to its clients and must treat each client fairly. When BlackRock purchases or sells
securities for more than one account, the trades must be allocated in a manner consistent with its fiduciary duties. BlackRock attempts to allocate investments in a fair and equitable manner among client accounts, with no account receiving
preferential treatment. To this end, BlackRock, Inc. has adopted policies that are intended to ensure reasonable efficiency in client transactions and provide BlackRock with sufficient flexibility to allocate investments in a manner that is
consistent with the particular investment discipline and client base, as appropriate.
(a)(3) As of December 31, 2024:
Portfolio Manager Compensation Overview
The discussion below describes the portfolio managers’ compensation as of December 31, 2024.
BlackRock’s financial arrangements with its portfolio managers, its competitive compensation and its career path emphasis at all levels
reflect the value senior management places on key resources. Compensation may include a variety of components and may vary from year to year based on a number of factors. The principal components of compensation include a base salary, a
performance-based discretionary bonus, participation in various benefits programs and one or more of the incentive compensation programs established by BlackRock.
Base Compensation. Generally, portfolio managers receive base compensation based on their position with the firm.
Discretionary Incentive Compensation. Discretionary incentive compensation is a function of several components: the
performance of BlackRock, Inc., the performance of the portfolio manager’s group within BlackRock, the investment performance, including risk-adjusted returns, of the firm’s assets under management or supervision by that portfolio manager
relative to predetermined benchmarks, and the individual’s performance and contribution to the overall performance of these portfolios and BlackRock. In most cases, these benchmarks are the same as the benchmark or benchmarks against which the
performance of the Funds or other accounts managed by the portfolio managers are measured. Among other things, BlackRock’s Chief Investment Officers make a subjective determination with respect to each portfolio manager’s compensation
based on the performance of the funds and other accounts managed by each portfolio manager relative to the various benchmarks. Performance of fixed income funds is measured on
a pre-tax and/or after-tax basis over various time periods including 1-, 3- and 5- year periods, as applicable. With respect to these portfolio managers, such benchmarks for the Fund and other accounts are:
|
|
|
| Portfolio Manager |
|
Benchmark |
| Scott MacLellan, CFA, CMT |
|
A combination of market-based indices (e.g., Bank of America Merrill Lynch U.S. Corporate &
Government Index, 1-3 Years), certain customized indices and certain fund industry peer groups |
| Akiva Dickstein |
|
A combination of market-based indices (e.g. Bloomberg U.S. Aggregate Index, Bloomberg U.S. Universal Index
and Bloomberg Intermediate Aggregate Index), certain customized indices and certain fund industry peer groups |
Distribution of Discretionary Incentive Compensation. Discretionary incentive compensation
is distributed to portfolio managers in a combination of cash, deferred BlackRock, Inc. stock awards, and/or deferred cash awards that notionally track the return of certain BlackRock investment products.
Portfolio managers receive their annual discretionary incentive compensation in the form of cash. Portfolio managers whose total compensation
is above a specified threshold also receive deferred BlackRock, Inc. stock awards annually as part of their discretionary incentive compensation. Paying a portion of discretionary incentive compensation in the form of deferred BlackRock, Inc. stock
puts compensation earned by a portfolio manager for a given year “at
risk” based on BlackRock’s ability to sustain and improve its performance over future periods. In some cases, additional deferred BlackRock, Inc. stock may be granted to certain key
employees as part of a long-term incentive award to aid in retention, align interests with long-term shareholders and motivate performance. Deferred BlackRock, Inc. stock awards are generally granted in the form of BlackRock, Inc. restricted stock
units that vest pursuant to the terms of the applicable plan and, once vested, settle in BlackRock, Inc. common stock. The portfolio managers of this Fund have deferred BlackRock, Inc. stock awards.
For certain portfolio managers, a portion of the discretionary incentive compensation is also distributed in the form of deferred cash awards
that notionally track the returns of select BlackRock investment products they manage, which provides direct alignment of portfolio manager discretionary incentive compensation with investment product results. Deferred cash awards vest ratably over
a number of years and, once vested, settle in the form of cash. Only portfolio managers who manage specified products and whose total compensation is above a specified threshold are eligible to participate in the deferred cash award program.
Other Compensation Benefits. In addition to base salary and discretionary incentive compensation, portfolio managers may be
eligible to receive or participate in one or more of the following:
Incentive Savings Plans — BlackRock, Inc. has
created a variety of incentive savings plans in which BlackRock, Inc. employees are eligible to participate, including a 401(k) plan, the BlackRock Retirement Savings Plan (RSP), and the BlackRock Employee Stock Purchase Plan (ESPP). The employer
contribution components of the RSP include a company match equal to 50% of the first 8% of eligible pay contributed to the plan capped at $5,000 per year, and a company retirement contribution equal
to 3-5% of eligible compensation up to the Internal Revenue Service limit ($345,000 for 2024). The RSP offers a range of investment options, including registered investment companies and collective
investment funds managed by the firm. BlackRock, Inc. contributions follow the investment direction set by participants for their own contributions or, absent participant investment direction, are invested into a target date fund that corresponds
to, or is closest to, the year in which the participant attains age 65. The ESPP allows for investment in BlackRock, Inc. common stock at a 5% discount on the fair market value of the stock on the purchase date. Annual participation in the ESPP is
limited to the purchase of 1,000 shares of common stock or a dollar value of $25,000 based on its fair market value on the purchase date. All of the eligible portfolio managers are eligible to participate in these plans.
(a)(4) Beneficial Ownership of Securities – As of December 31, 2024.
|
|
|
|
|
| Portfolio Manager |
|
Dollar Range of Equity
Securities of
the Fund Beneficially Owned |
|
|
| Scott MacLellan, CFA, CMT |
|
$10,001 -
$50,000 |
| Akiva Dickstein |
|
$50,001 -
$100,000 |
(b) Not Applicable
| Item 14 – |
Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers – Not Applicable due to no such purchases during the period covered by this report. |
| Item 15 – |
Submission of Matters to a Vote of Security Holders – There have been no material changes to these
procedures. |
| Item 16 – |
Controls and Procedures |
(a) The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that
the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date
within 90 days of the filing date of this report based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rule
13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended.
(b) There were no changes in the registrant’s internal control over financial reporting (as defined in
Rule 30a-3(d) under the 1940 Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal
control over financial reporting.
| Item 17 – |
Disclosure of Securities Lending Activities
for Closed-End Management Investment Companies – Not Applicable |
| Item 18 – |
Recovery of Erroneously Awarded Compensation – Not Applicable |
| Item 19 – |
Exhibits attached hereto |
(a)(1) Code of Ethics – See Item 2
(a)(2) Any policy required by the listing standards adopted pursuant to Rule 10D-1 under the Exchange
Act (17 CFR 240.10D-1) by the registered national securities exchange or registered national securities association upon which the registrant’s securities are listed – Not Applicable
(a)(3) Section 302 Certifications are attached
(a)(4) Any written solicitation to purchase securities under Rule 23c-1 – Not
Applicable
(a)(5) Change in Registrant’s independent public accountant – Not Applicable
(b) Section 906 Certifications are attached
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company
Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BlackRock Enhanced Government Fund, Inc.
|
|
|
|
|
|
|
By: |
|
/s/ John M.
Perlowski |
|
|
|
|
John M. Perlowski |
|
|
|
|
Chief Executive Officer (principal executive officer) of |
|
|
|
|
BlackRock Enhanced Government Fund, Inc. |
Date: February 26, 2025
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
|
|
|
|
|
|
By: |
|
/s/ John M.
Perlowski |
|
|
|
|
John M. Perlowski |
|
|
|
|
Chief Executive Officer (principal executive officer) of |
|
|
|
|
BlackRock Enhanced Government Fund, Inc. |
Date: February 26, 2025
|
|
|
|
|
|
|
By: |
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/s/ Trent
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Trent Walker |
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Chief Financial Officer (principal financial officer) of |
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BlackRock Enhanced Government Fund, Inc. |
Date: February 26, 2025
EX-99. CERT
CERTIFICATION PURSUANT TO RULE 30a-2(a) UNDER THE 1940 ACT AND SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, John M. Perlowski, Chief Executive Officer
(principal executive officer) of BlackRock Enhanced Government Fund, Inc., certify that:
1. I have reviewed this report on Form N-CSR of BlackRock Enhanced Government Fund, Inc.;
2. Based on my knowledge, this
report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
a) all significant
deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial
information; and
b) any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: February 26, 2025
/s/ John M. Perlowski
John M. Perlowski
Chief
Executive Officer (principal executive officer) of
BlackRock Enhanced Government Fund, Inc.
EX-99. CERT
CERTIFICATION PURSUANT TO RULE 30a-2(a) UNDER THE 1940 ACT AND SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Trent Walker, Chief Financial Officer (principal
financial officer) of BlackRock Enhanced Government Fund, Inc. , certify that:
1. I have reviewed this report on Form N-CSR of BlackRock Enhanced Government Fund, Inc. ;
2. Based on my knowledge, this
report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
a) all significant
deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial
information; and
b) any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: February 26, 2025
/s/ Trent Walker
Trent Walker
Chief Financial
Officer (principal financial officer) of
BlackRock Enhanced Government Fund, Inc.
Exhibit 99.906CERT
Certification Pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. § 1350, the undersigned officer of BlackRock Enhanced Government Fund, Inc. (the “Registrant”), hereby certifies, to the
best of his knowledge, that the Registrant’s Report on Form N-CSR for the period ended December 31, 2024 (the “Report”) fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
Date: February 26, 2025
/s/ John M. Perlowski
John M. Perlowski
Chief Executive Officer
(principal executive officer) of
BlackRock Enhanced Government Fund, Inc.
Pursuant to 18 U.S.C. § 1350, the undersigned officer of BlackRock Enhanced Government Fund, Inc. (the “Registrant”), hereby certifies, to the
best of his knowledge, that the Registrant’s Report on Form N-CSR for the period ended December 31, 2024 (the “Report”) fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
Date: February 26, 2025
/s/ Trent Walker
Trent Walker
Chief Financial Officer (principal
financial officer) of
BlackRock Enhanced Government Fund, Inc.
This certification is being furnished pursuant to Rule 30a-2(b) under the Investment Company Act of 1940, as
amended, and 18 U.S.C. § 1350 and is not being filed as part of the Form N-CSR with the Securities and Exchange Commission.
Closed-End Fund Proxy Voting Policy
August 1, 2021
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| Closed-End Fund Proxy Voting Policy |
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| Procedures Governing Delegation of Proxy Voting to Fund
Adviser |
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Effective Date: August 1, 2021 Last Review Date: September 1,
2024 |
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Applies to the following types of Funds registered under the 1940 Act: ☐ Open-End Mutual Funds (including money market funds) ☐ Money Market Funds ☐ Exchange-Traded Funds
☒ Closed-End Funds
☐ Other |
Objective and Scope
Set forth below is the
Closed-End Fund Proxy Voting Policy.
Policy / Document Requirements and Statements
The Boards of Trustees/Directors (the “Directors”) of the closed-end funds advised by BlackRock Advisors, LLC
(“BlackRock”), (the “Funds”) have the responsibility for the oversight of voting proxies relating to portfolio securities of the Funds, and have determined that it is in the best interests of the Funds and their shareholders to
delegate that responsibility to BlackRock as part of BlackRock’s authority to manage, acquire and dispose of account assets, all as contemplated by the Funds’ respective investment management agreements.
BlackRock has adopted guidelines and procedures (together and as from time to time amended, the “BlackRock proxy voting guidelines”) governing proxy voting by
accounts managed by BlackRock. BlackRock will cast votes on behalf of each of the Funds on specific proxy issues in respect of securities held by each such Fund in accordance with the BlackRock Proxy voting guidelines; provided, however, that in the
case of underlying closed-end funds (including business development companies and other similarly-situated asset pools) held by the Funds that have, or are proposing to adopt, a classified board structure,
BlackRock will typically (a) vote in favor of proposals to adopt classification and against proposals to eliminate classification, and (b) not vote against directors as a result of their adoption of a classified board structure.
BlackRock will report on an annual basis to the Directors on (1) a summary of the proxy voting process as applicable to the Funds in the preceding year together
with a representation that all votes were in accordance with the BlackRock proxy voting guidelines (as modified pursuant to the immediately preceding paragraph), and (2) any changes to the BlackRock proxy voting guidelines that have not
previously been reported.
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BlackRock
Active
Investment
Stewardship
Global Engagement and Voting Guidelines
Effective as of January 2025
Contents
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Global Engagement and Voting Guidelines | 2 |
Overview
This document provides high level guidance on how BlackRock Active Investment Stewardship (BAIS) views corporate governance matters that are commonly put to a
shareholder vote, or on which investors engage with issuers. BAIS works in partnership with BlackRock’s investment teams, excluding index equity, providing expertise on investment stewardship, engaging with companies on behalf of those teams
when appropriate, and assisting in recommending, operationalizing and reporting on voting decisions. The guidance informs BAIS’ voting recommendations to BlackRock’s active portfolio managers. It applies to active equity holdings in
BlackRock’s fundamental equity, systematic equity and multi-asset solutions strategies. It also may apply to holdings in BlackRock’s index and active fixed income strategies, to the extent those strategies hold voting securities or conduct
issuer engagements. The guidelines are not prescriptive as active portfolio managers have discretion as to how they integrate these guidelines within their investment processes in light of their clients’ or funds’ investment objectives.
There are separate, independently developed principles and voting policies that are applied to BlackRock’s index equity investments by a distinct and independent function, BlackRock Investment Stewardship.
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Global Engagement and Voting Guidelines | 3 |
Introduction to BlackRock
BlackRock’s purpose is to help more and more people experience financial well-being. We manage assets on behalf of institutional and individual clients, across a
full spectrum of investment strategies, asset classes, and regions. Our client base includes pension plans, endowments, foundations, charities, official institutions, insurers, and other financial institutions, as well as individuals around the
world.
About BlackRock Active Investment Stewardship
BlackRock Active Investment Stewardship (BAIS) is a specialist team within the Portfolio Management Group and manages BlackRock’s stewardship engagement and voting
on behalf of clients invested in active strategies globally. BAIS is also responsible for engagement with issuers in index fixed income strategies, where appropriate. Our activities are informed by these Global Engagement and Voting Guidelines
(“the Guidelines”) and insights from active investment analysts and portfolio managers, with whom we work closely in engaging companies and voting at shareholder meetings.
Engagement with public companies is the foundation of our approach to stewardship within fundamental active investing. Through direct dialogue with company leadership,
we seek to understand their businesses and how they manage risks and opportunities to deliver durable, risk adjusted financial returns. Generally, portfolio managers and stewardship specialists engage jointly on substantive matters. Our discussions
focus on topics relevant to a company’s success over time including governance and leadership, corporate strategy, capital structure and financial performance, operations and sustainability-related risks, as well as macro-economic, geopolitical
and sector dynamics. We aim to be constructive investors and are generally supportive of management teams that have a track record of financial value creation. We aim to build and maintain strong relationships with company leadership based on open
dialogue and mutual respect.
Different active equity strategies may implement these voting guidelines differently, as a result of the latitude the portfolio
manager has to make independent voting decisions aligned with their portfolio objectives and investment strategy. For example, BAIS will generally vote the holdings in Systematic Active Equity portfolios in accordance with these guidelines. We
provide voting recommendations to fundamental equity portfolio managers, who may determine to vote differently based on their portfolio investment objectives and strategy.
These guidelines discuss corporate governance topics on which we may engage with management teams and board
directors1 and matters that routinely come to a shareholder vote. We recognize that accepted corporate governance norms can differ across markets, and believe these guidelines represent globally
applicable elements of governance that support a company’s ability to manage material risks and opportunities and deliver financial returns to investors. Generally, we believe companies should observe accepted corporate governance norms within
their local markets or, particularly in markets without well-established norms, aspire to widely recognized international best practices. As one of many minority shareholders, BlackRock cannot – and does not try to – direct a
company’s strategy or its implementation. We look to companies to provide disclosures that explain how their approach to corporate governance best aligns with the financial interests of their investors.
1 References to the board, board directors or non-executive directors should
be understood to include supervisory boards and their members, where relevant.
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Global Engagement and Voting Guidelines | 4 |
Our approach to stewardship within active equities
As shareholders of public companies, BlackRock’s clients have certain fundamental rights, including the right to vote on proposals put forth by a company’s
management or its shareholders. The voting rights attached to these clients’ holdings are an important mechanism for investors to express support for, or concern about, a company’s performance. As a fiduciary, BlackRock is legally required
to make proxy voting determinations, on behalf of clients who have delegated voting authority to us, in a manner that is consistent with their investment objectives.
In general, we tend to support the recommendations of the board of directors and management. As indicated below, we may vote against management recommendations when we
have concerns about how companies are serving the financial interests of our clients as their shareholders. We take a globally consistent approach to voting but consider the different corporate governance regulations and norms in various markets.
Votes are determined on a case-by-case basis, in the context of a company’s situation and the investment mandate we have from clients. Please see page 16 for more
information about how we fulfil and oversee BlackRock’s non-index equity investment stewardship responsibilities.
Our approach to stewardship within fixed income
Although fixed income investors do not have the right to vote at shareholder meetings, issuer engagement is
a component of fixed income investment strategies at BlackRock, particularly those with sustainability objectives in addition to financial objectives. Most corporate governance-related fixed income engagements are undertaken in conjunction with the
active investment stewardship team, and often active equity investors. In addition to the topics listed below, engagement with fixed income investment teams can help inform an issuer’s approach to structuring specialist issuances, such as green
bonds, and the standard terms and information in bond documentation.
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Global Engagement and Voting Guidelines | 5 |
Boards of Directors
Roles and responsibilities
There is widespread consensus that the foundation
of good corporate governance is an effective board of directors that is able to advise and supervise management in an independent and objective manner.2
We look to the board of directors (hereafter ‘the board’) to have an oversight role in the establishment and realization of a company’s strategy, purpose
and culture. These constructs are interdependent and, when aligned, can better position a company to be resilient in the face of a changing business environment, help reduce the risks of corporate or employee misconduct, and attract and retain the
caliber of workers necessary to deliver financial performance over time.
In promoting the success of the company, the board ensures the necessary resources,
policies and procedures are in place to help management meet its strategic objectives within an agreed risk tolerance.
One of the most important responsibilities
of the board is to appoint, and remove as necessary, the chief executive officer (CEO). In addition, the board plays a meaningful role in monitoring the performance of the CEO and other key executives, determining executive compensation, ensuring a
rigorous audit, overseeing strategy execution and risk management and engaging with shareholders, and other stakeholders, as necessary.
Composition and
effectiveness
Appointment process
A formal and transparent
process for identifying and appointing director candidates is critical to ensuring the board is composed of directors with the appropriate mix of skills and experience. The board or a sub-committee should determine the general criteria given the
company’s circumstances (e.g., sector, maturity, geographic footprint) and any additional criteria for a specific role being filled (e.g., financial expertise, industry track record). To inform the process, we encourage companies to review the
skills and experience of incumbent directors to identify any gaps and whether a director candidate’s characteristics would be additive. We welcome disclosures that explain how the board considered different skills, backgrounds and experience to
ensure the directors collectively can be effective in fulfilling their responsibilities. We assess a company’s board composition against that of its peer group and local market requirements.
Shareholders periodically vote to elect, remove and nominate directors to serve on the board. We may vote against the election of the most senior independent director,
or the chair of the relevant committee, where a company has not demonstrated it has an appointment process that results in a high functioning board with the appropriate complement of skills, backgrounds and experience amongst the directors to
support strong financial performance over time. We may vote against newly nominated directors who do not seem to have the appropriate skills or experience to contribute to the board’s effectiveness.
Independence
Director independence from management, significant
shareholders or other stakeholders (e.g., government or employees) is of paramount importance to the protection of the interests of minority shareholders such as BlackRock’s clients. At least half of the directors should be independent and free
2 See the Corporate Governance Codes of Germany, Japan, and the UK, as well as the corporate
governance principles of the US Business Roundtable as examples.
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Global Engagement and Voting Guidelines | 6 |
from conflicts of interest or undue influence.3 This ensures
sufficient independent directors to have appropriately independent board committees. Companies domiciled in markets with a higher threshold for board independence should meet those requirements.
We may vote against the election of non-independent directors if the board does not have a sufficient balance of independence.
We may also vote against the election of the chair of the committee responsible for board composition if this is a perennial issue.
Independent board
leadership
Practices across markets differ, as do board structures, but we observe two main approaches to independent board leadership. One is a non-executive, independent chair of the board who is responsible for leading the board in the effective exercise of its duties. The other is a lead or senior independent director, who is responsible for coordinating
with the other non-executive directors and working closely with the executive chair on the board agenda and other board procedures. In this case, the executive chair and the lead independent director work
together to ensure the board is effectively fulfilling its responsibilities. In our view, the independent leader of the board, and/or the chair of a relevant committee, should be available to investors to discuss board governance matters such as CEO
succession, executive pay, and board performance. We look to boards to explain their independent board leadership model and how it serves the interests of shareholders.
We may vote against the election of the chair of the committee responsible for board composition if there is not an identified independent leader of the board with
clear responsibilities for board performance. We may vote against the most senior independent director if the board has a policy of not engaging with shareholders.
Tenure and succession
Boards should establish the length of time a
director would normally be expected to serve, in line with market norms where those exist. In such markets, we find it helpful when companies disclose their approach to director tenure particularly around the contributions of directors who have
served for longer periods than provided for in local practices. In our experience, long-serving directors could become less independent given their relationship with management and involvement in past board decisions.
Succession planning for board roles helps achieve the appropriate cadence of turnover that balances renewal through the regular introduction of directors with fresh
perspectives and expertise with continuity through the retention of directors with long-term knowledge of the board and company.
In markets where there is not
specific director tenure guidance, we may vote against the election of the chair of the committee responsible for board composition if there is not a clearly disclosed approach to director tenure and board renewal. We may vote against the election
of directors who have served for longer duration than typical in markets with specific guidance, where the case for their continued service is not evident.
3
Common impediments to independence may include but are not limited to: current or recent employment at the company or a subsidiary; being, or representing, a shareholder with a substantial shareholding in the company; interlocking directorships;
lengthy tenure, and having any other interest, business, or other relationship which could, or could reasonably be perceived to, materially interfere with a director’s ability to act in the best interests of the company and shareholders.
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Global Engagement and Voting Guidelines | 7 |
Capacity
To be
effective and engaged, directors must commit appropriate time and energy to the role. A board should assess the ability of its members to maintain an appropriate focus on board matters and the company taking into consideration competing
responsibilities. We recognize that board leadership roles vary across markets in responsibilities and required time commitment but note that they are generally more intensive than a standard directorship. We will take local norms and practices into
consideration when making our voting determinations across markets.
We may vote against the election of directors who do not seem to have sufficient capacity to
effectively fulfil their duties to the board and company.
Director elections
In support of director accountability to shareholders, directors should stand for election on a regular basis, ideally annually. A classified board structure may be
justified by a company when it needs consistency and stability during a time of transition, or on the basis of its business model, e.g., a non-operating company such as
closed-end funds.
Shareholders should have the opportunity to evaluate nominated directors individually rather than in
bundled slates. We look to companies to provide sufficient information on each director standing for election so that shareholders can assess their capabilities and suitability. We will not support the election of directors whose names and
biographical details have not been disclosed sufficiently in advance of the shareholder meeting.
Each director’s appointment should be dependent on receiving
a simple majority of the votes cast at the shareholder meeting. Where a company’s practices differ, we look to the board to provide a detailed explanation as to how its approach best serves investors’ interests.
We may vote for shareholder or management proposals seeking to establish annual election of directors and/or a simple majority vote standard for director elections. We
may vote against all the directors standing for election as part of a single slate if we have concerns about the profile or performance of an individual director.
Committees
Many boards establish committees to focus on specific
responsibilities of the board such as audit and risk, governance and human capital, and executive compensation, amongst other matters. We do not prescribe to companies what committees they should establish but we seek to understand the board’s
rationale for the committee structure it determines is appropriate. We note that, in some markets, regulation requires such committees. The responsibilities of each committee should be clear, and the board should ensure that all critical matters are
assigned either to the full board or to one of the committees. The board should disclose to shareholders the structure, membership, proportion of independent directors, and responsibilities of each committee. The responsibilities we typically see
assigned to the three most common committees include:
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Audit and risk – oversight responsibilities for the integrity of financial reporting, risk management and compliance
with legal and regulatory requirements; may also play an oversight role in relation to the internal audit function and whistleblowing mechanisms. |
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Global Engagement and Voting Guidelines | 8 |
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Nominating, governance and human capital – ensures appropriate corporate governance principles and practices including
the periodic review of board performance; responsible for succession planning for CEO and key board roles, as well as the director appointment process; may also have oversight responsibilities for human capital management strategies including
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Executive compensation – determines the compensation policies and programs for the CEO and other executive officers,
approves annual awards and payments under the policies; may also have oversight responsibilities for firm-wide compensation policies. |
We may vote
against the election of the chair of the committee or other directors serving as committee members to convey our concerns and provide feedback on how a committee has undertaken its responsibilities. We may vote against the election of the most
senior non-executive director if there is not a clearly disclosed approach to board committees.
Board and director
evaluation
We consider it best practice for companies to conduct an annual review of the performance of the board, the committees, the chair and individual
directors. Periodically, this review could be undertaken by an independent third party able to bring objective perspectives to the board on governance and performance. We encourage companies to disclose their approach to and objectives of
evaluations, including any changes made to the board’s approach as a result.
Access to independent advice
To support the directors in effectively fulfilling their duties to the company and shareholders, they should have access to independent advice. When circumstances
warrant, boards should be able to retain independent third parties to advise on critical matters. These might include new industry developments such as emergent and disruptive technology, operating events with material consequences for the
company’s reputation and/or performance, or significant transactions. Board committees may similarly retain third parties to advise them on specialist matters such as audit, compensation and succession planning.
Executive compensation
Boards should
establish compensation arrangements that enable the company to recruit, retain and reward the caliber of executive management necessary to lead and operate the company to deliver superior financial returns over time. We focus on alignment between
variable pay and a company’s financial performance.
Generally, executive compensation arrangements have four components: base salary, annual bonus that
rewards performance against short-term metrics, share-based incentives that reward performance against long-term metrics, and pensions and benefits. In our observation, base salary, pensions and benefits are largely set relative to market norms and
benchmarks. The annual bonus and share-based incentive, or variable pay plans, tend to be tailored to the company, its sector and long-term strategy, as well as the individuals the board is seeking to recruit and motivate.
Recognizing the unique circumstances of each company, we determine whether to support a company’s approach to executive compensation on a case-by-case basis. We rely on companies providing sufficient quantitative and qualitative information in their disclosures to enable shareholders to understand the
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compensation arrangements and assess the alignment with investors’ interests. Features we look for in compensation
arrangements include:
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Fixed pay components, including base salary, benefits and prerequisites that are appropriate in the context of the
company’s size, sector and market. |
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Variable pay subject to performance metrics that are closely linked to the company’s short- and long-term strategic
objectives. |
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Long-term incentives that motivate sustained performance across a multi-year period. |
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A balance between fixed and variable pay, short- and long-term incentives, and specific instruments (cash and equity
awards) that promotes pay program durability and seldom necessitates one-off, discretionary payments. |
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Outcomes that are consistent with the returns to investors over the relevant time period. |
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Board discretion, if allowed within the variable pay arrangements, to be used sparingly, responsibly and transparently.
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A requirement, that participants in long-term share-based incentive plans build a meaningful shareholding in the company
within a defined time period, as determined by the board. |
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Change of control provisions that appropriately balance the interests of executives and shareholders.
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Clawback or malus provisions that allow the company to recoup or hold back variable compensation from individuals whose
awards were based on fraudulent activities, misstated financial reports, or executive misconduct. |
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Severance arrangements that protect the company’s interests but do not cost more than is contractual.
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We may vote against proposals to introduce new share-based incentives, approve existing policies or plans, or approve the compensation report
where we do not see alignment between executive compensation arrangements and our clients’ financial interests. When there is not an alternative, or where there have been multi-year issues with compensation misaligned with performance, we may
vote against the election of the chair of the responsible committee, or the most senior independent director.
Non-executive director compensation
Companies generally pay non-executive directors an
annual retainer or fee in cash, shares or a combination of the two. Some companies also pay additional fees for service on board committees or in board leadership roles. We do not support non-executive
directors participating in performance-based incentive plans as doing so may create a conflict of interest and undermine their independence from management, whom they oversee.
Capital structure
Boards are responsible for
ensuring senior executive leadership has established a capital strategy that achieves appropriate capital allocation and management in support of long-term financial resilience.
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Global Engagement and Voting Guidelines | 10 |
Where company practices diverge from those set out below, we look for companies to disclose why they view these practices
to be aligned with shareholders’ interests. We may vote against management proposals seeking capital-related authorities or the election of the most senior independent director if we have concerns about a company’s approach. We may also
support a shareholder proposal seeking conversion of shares with differentiated voting rights to a one-share, one-vote standard.
Share issuance
We assess requests for share issuance for
particular transactions on a case-by-case basis. We will generally support authorities to issue shares when subject to
pre-emptive rights, and up to 20% absent pre-emptive rights. Companies should seek regular approval of these authorities to allow shareholders to take into consideration
how prior authorities were used, as well as the current circumstances of the company and the market environment.
Share buybacks
We assess share buyback proposals in the context of the company’s disclosed capital management strategy and management’s determination of the appropriate
balance between investment that supports the long-term growth of the company and returning cash to investors. We also take into consideration the effect of a buyback program on the company’s balance sheet and executive compensation arrangements
and the price at which shares are repurchased relative to market price. Companies should seek regular approval of these authorities to allow shareholders to take into consideration how prior authorities were used, as well as the current
circumstances of the company and the market environment.
We would normally expect companies to cancel repurchased shares. If a company plans to retain them as
treasury shares, management should provide a detailed rationale in the context of the disclosed capital management strategy.
Dividends
We generally defer to management and the board on dividend policy but may engage to seek further clarification where a proposed dividend appears out of line with the
company’s financial position.
Differentiated voting rights
We
prefer companies to adopt a one-share, one-vote structure for share classes with the same economic exposure. Certain companies, particularly those new to public markets,
could make the case to adopt a differentiated voting rights structure, or dual class stock. In those situations, we encourage companies to evaluate and seek approval for their capital structure on a periodic basis.
Transactions and special situations
We
monitor developments in transactions and special situations closely and undertake our own detailed analyses of proposals.
Mergers and acquisitions
We evaluate proposed mergers or acquisitions by assessing the financial outcome for our clients as minority shareholders. Management should provide an assessment of the
proposed transaction’s strategic and financial rationale, along with its execution and operational risks. We review each transaction independently based on these factors and the degree to which the transaction enhances
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shareholder value. The board should consider establishing an ad hoc transaction committee to undertake an independent
assessment of a significant merger or acquisition, in advance of making its recommendation to shareholders.
We will vote against transactions that, in our
assessment, do not advance our clients’ financial interests.
Anti-takeover defenses
In principle, we do not support companies using anti-takeover defenses, also known as poison pills or shareholder rights plans, as they can entrench management and
boards which have not delivered long-term shareholder value. By exception, a poison pill may be supported if its purpose is to delay a takeover that is considered sub-optimal and enable management to seek an
improved offer. Similarly, management could make the case to use a poison pill to block a shareholder activism campaign that may be counter to the interests of other investors. Defense mechanisms introduced in these circumstances should be limited
in term and threshold, and also be closely monitored by the independent members of the board. We look for a shareholder vote for any mechanisms expected to be in place for more than 12 months.
Shareholder activism
When companies are the focus of an activism campaign,
we may engage with the activist to understand their analysis and objectives, once they have gone public. We will also engage with company management and possibly board members, especially those the activist may be seeking to replace. In our
assessment, we evaluate various factors, including the concerns raised by the activist and the case for change; the quality of both the activist’s and management’s plans; and the qualifications of each party’s candidates. We evaluate
each contested situation by assessing the potential financial outcome for our clients as minority shareholders.
We may support board candidates nominated by a
shareholder activist if the activist has demonstrated that their case for change enhances shareholder value, or if the incumbent board members do not demonstrate the relevant skills and expertise or have a poor track record of protecting
shareholders’ interests.
Significant shareholders and related party transactions
Boards of companies with affiliated shareholders or directors should be able to demonstrate that the interests of all shareholders are given equitable consideration.
Transactions with related parties, such as significant shareholders or companies connected with the public company, should be disclosed in detail and conducted on
terms similar to what would objectively have been agreed with a non-related party. Such transactions should be reviewed and approved by the independent members of the board, and if voted on, only disinterested
shareholders should vote.
Corporate reporting, risk management and audit
Investors depend on corporate reporting, both regulatory and voluntary, to understand a company’s strategy, its implementation and financial performance, as well as
to assess the quality of management and operations and potential for the company to create shareholder value over time. The board should oversee corporate reporting and the policies and procedures underpinning the internal audit function and
external audit.
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A company’s financial reporting should provide decision-useful information for investors and other stakeholders on its
financial performance and position. It should provide an accurate and balanced assessment of the risks and opportunities the company faces in realizing its long-term strategy. Accordingly, the assumptions made by management and reviewed by the
auditor in preparing the financial statements should be reasonable and justified. Financial statements should be prepared in accordance with globally developed reporting standards and any divergence from generally accepted accounting principles
should be explained in detail and justified. Accounting restatements should be explained in detail and any remedial actions, and the implications of these, disclosed.
In this context, audit committees play a vital role in a company’s financial reporting system by providing independent oversight of the accounts, material
financial and, where appropriate to the jurisdiction, nonfinancial information, internal control frameworks and Enterprise Risk Management systems. In our view, effective audit committee oversight strengthens the quality and reliability of a
company’s financial statements and provides an important level of reassurance to shareholders. Audit committees should have a procedure in place for assessing the independence of the auditor and the quality of the external audit process
annually.
Similarly, material sustainability-related factors that are integral to how a company manages risks or generates revenue should be disclosed. In our
view, the standards developed by the International Sustainability Standards Board, can be helpful to companies in preparing such reports. 4
Companies should establish robust risk management and internal control processes appropriate to the company’s business, risk tolerance, and regulatory environment.
A credible whistleblowing system for employees, and potentially other stakeholders, can be a useful mechanism for ensuring that senior management and the board are aware of potential misconduct or breaches in risk management and internal control
processes.
A comprehensive audit conducted by an independent audit firm contributes to investor confidence in the quality of corporate reporting. It is helpful
when the audit report gives some insight into the scope and focus of the audit, as well as any critical audit matters identified and how these were resolved. A comprehensive and effective audit is time and resource intensive, and the audit fee
should be commensurate. Fees paid to the audit firm for non-audit consulting should not exceed the audit fee to a degree that may prompt concerns about the independence of the audit. The audit committee should
explain its position on auditor tenure and how it confirmed that the auditor remained independent.
We may vote against the election of the responsible directors if
corporate reporting is insufficient or there are material misstatements in financial reports. In markets where relevant, we may vote against a proposal to approve the financial statements or the discharge of the board when we are concerned about the
quality of the reporting or the audit. We may vote against proposals to appoint the auditor, ratify the audit report, or approve the audit fee if we are concerned about the auditor’s independence, the quality of the audit, or there are material
misstatements in financial reports and the board has not established reasonable remediation plans.
4
The objective of IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information is to require an entity to disclose information about its sustainability-related risks and opportunities that is useful to primary users of
general-purpose financial reports in making decisions relating to providing resources to the entity. The objective of IFRS S2 Climate-related Disclosures is to require an entity to disclose information about its climate-related risks and
opportunities that is useful to primary users of general-purpose financial reports in making decisions relating to providing resources to the entity.
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Shareholder rights and protections
General shareholder meetings
Companies normally have an annual general
meeting of shareholders at which routine and non-routine items of business are discussed and voted on by shareholders in attendance or submitting proxy votes. Companies should disclose materials relevant to
the shareholder meeting sufficiently in advance so that shareholders can take them into consideration in their voting decisions. Many companies offer shareholders the option of participating in the meeting virtually which, whilst welcome, should not
limit the rights of shareholders to participate as they would during an in-person meeting.
We may vote against directors
when materials related to the business of the shareholder meeting are not provided in a timely manner or do not provide sufficient information for us to take an informed voting decision. We may vote against directors if the format of the shareholder
meeting does not accommodate reasonable shareholder participation.
Bylaw amendments
We review bylaw amendments proposed by management on a case-by-case basis and will
generally support those that are aligned with the interests of minority shareholders. Any material changes to the bylaws should be explained in detail and put to a shareholder vote.
We may vote against bylaw amendments that reduce shareholder rights and protections. We may vote against directors if material changes are made to the bylaws without
shareholder approval.
If not provided for in the relevant corporate law, company bylaws should allow shareholders, individually or as a group, with a meaningful
shareholding the right to call a special meeting of shareholders. The shareholding required to exercise this right should balance its utility with the cost to the company of holding special meetings.
If not provided for in the relevant corporate law, company bylaws should allow shareholders, individually or as a group, with a meaningful shareholding the right to
nominate directors to the company’s board. The threshold for this right should be set so that shareholders can exercise it without being unduly disruptive to the board’s own nomination process.
Whilst we would not use either of these rights ourselves, we see them as important accountability mechanisms. We may vote for a shareholder proposal seeking the
addition of either of these provisions to a company’s bylaws.
Change of domicile
We generally defer to management on proposals to change a company’s domicile as long as the rationale for doing so is consistent with the company’s long-term
strategy and business model and the related costs are immaterial.
We may vote against directors or a proposal to change a company’s domicile where it does not
seem aligned with our clients’ financial interests.
Changes to a company’s purpose or the nature of its business
Plans to materially change the nature of a company’s business or its purpose should be disclosed and explained in the context of long-term strategy and business
dynamics. Such changes may significantly alter an investor’s views on the suitability of a company for their investment strategy or portfolio.
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Where relevant, we may vote against proposals to change a company’s purpose or the nature of its business if the board
has not provided a credible argument for change.
Shareholder proposals
Shareholders in many markets, who meet certain eligibility criteria, have the right to submit proposals to the general shareholder meeting asking a company to take a
particular course of action subject to the proposal being supported by a majority of votes cast at the meeting. The topics raised address a range of governance, social and environmental matters that may be relevant to a company’s business.
Shareholder proposals are considered by many investors to be an escalation tool when a company is unresponsive to their engagement.
We vote on these proposals on a
case-by-case basis. We assess the relevance of the topic raised to a company’s business and its current approach, whether the actions sought are consistent with
shareholders’ interests, and what impact the proposal being acted upon might have on financial performance.
Our general approach where we have concerns about
a company’s governance, disclosures or performance is to engage to understand the apparent difference in perspective. If we continue to believe the company is not acting in shareholders’ financial interests, we may vote against the
election of directors. We may support a relevant shareholder proposal if doing so reinforces the points made in our engagement or is aligned with our clients’ financial interests. We generally do not support shareholder proposals that are
legally binding on the company, seek to alter a company’s strategy or direct its operations, or are unrelated to how a company manages risk or generates financial returns.
BlackRock is subject to legal and regulatory requirements in the U.S. that place restrictions and limitations on how we can interact with the companies in which we
invest on behalf of our clients, including our ability to submit shareholder proposals. We can vote on behalf of clients who authorize us to do so, on proposals put forth by others.
Corporate political activities
We seek to
understand how companies ensure that their direct and indirect engagement in the policy making process is consistent with their public statements on policy matters important to the company’s long-term strategy. The board should be aware of the
approach taken to corporate political activities as there can be reputational risks arising from inconsistencies. Companies should, as a minimum, meet all regulatory disclosure requirements on political activities, and ideally, provide accessible
and clear disclosures to shareholders on policy positions, public policy engagement activities and political donations. To mitigate the risk of inconsistencies, companies can usefully assess the alignment between their policy priorities and the
policy positions of the trade associations of which they are active members and any engagements undertaken by trade associations on behalf of members.
Generally,
this is an engagement matter, although we may support a relevant shareholder proposal, or vote against directors, where a company’s disclosures are insufficient, or it becomes public that there is a material contradiction in a company’s
public policy positions and its policy engagement.
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Sustainability, or environmental and social, considerations
We seek to understand how companies manage the risks and opportunities inherent in their business operations. In our experience, sustainability-related factors5 that are relevant to a company’s business or material to its financial performance, are generally operational considerations embedded into day-to-day management systems. Certain sustainability issues may also inform long-term strategic planning, for example, investing in product innovation in anticipation of changing consumer demand or adapting
supply chains in response to changing regulatory requirements.
We recognize that the specific sustainability-related factors that may be financially material or
business relevant will vary by company business model, sector, key markets, and time horizon, amongst other considerations. From company disclosures and our engagement, we aim to understand how management is identifying, assessing and integrating
material sustainability-related risks and opportunities into their business decision-making and practices. Doing so helps us undertake a more holistic assessment of a company’s potential financial performance and the likely risk-adjusted
returns of an investment.
We may vote against directors or support a relevant shareholder proposal if we have concerns about how a company is managing or
disclosing its approach to material sustainability-related risks that may impact financial returns.
Key stakeholders
In our view, companies should understand and take into consideration the interests of the various parties on whom they depend for their success over time. It is for each
company to determine their key stakeholders based on what is material to their business and long-term financial performance. For many companies, key stakeholders include employees, business partners (such as suppliers and distributors), clients and
consumers, regulators, and the communities in which they operate. Companies that appropriately balance the interests of investors and other stakeholders are, in our experience, more likely to be financially resilient over time.
5
By material sustainability-related risks and opportunities, we mean the drivers of risk and financial value creation in a company’s business model that have an environmental or social dependency or impact. Examples of environmental issues
include, but are not limited to, water use, land use, waste management, and climate risk. Examples of social issues include, but are not limited to, human capital management, impacts on the communities in which a company operates, customer loyalty,
and relationships with regulators. It is our view that well-managed companies will effectively evaluate and manage material sustainability-related risks and opportunities relevant to their businesses. Governance is the core means by which boards can
oversee the creation of durable financial value over time. Appropriate risk oversight of business-relevant and material sustainability-related considerations is a component of a sound governance framework.
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Climate and decarbonization investment objectives
Certain active BlackRock funds have climate and decarbonization objectives in addition to financial objectives. Consistent with the objectives of those investment
strategies, our stewardship activity in relation to the holdings in those funds differs in some respects from BAIS’ benchmark guidelines, which are described above. Specifically, for those funds’ holdings, we look to investee companies to
demonstrate that they are aligned with a decarbonization pathway that means their business model would be viable in a low-carbon economy, i.e., one in which global temperature rise is limited to 1.5°C
above pre-industrial levels. This approach is only taken following BlackRock receiving the explicit approval from the applicable fund board.
The decarbonization stewardship guidelines focus on companies which produce goods and services that contribute to real world decarbonization or have a carbon intensive
business model and face outsized impacts from the low carbon transition, based on reported and estimated scopes 1, 2, and 3 greenhouse gas emissions. These companies should provide disclosures that set out their governance, strategy, risk management
processes and metrics and targets relevant to decarbonization. These disclosures should include an explanation of the decarbonization scenarios a company is using in its near- and long-term planning, as well as its scope 1, scope 2 and material
scope 3 greenhouse gas (GHG) emissions and reduction targets for scope 1 and 2 emissions. As with the BAIS benchmark policies, we consider the climate-risk reporting standard issued by the International Sustainability Standards Board, IFRS S2, a
useful reference for such reporting.
Under these climate- and decarbonization-specific guidelines, BAIS may recommend a vote against directors
or support for a relevant shareholder proposal if a company does not appear to be adequately addressing or disclosing material climate-related risks. We may recommend supporting shareholder proposals seeking information relevant to a company’s
stated low-carbon transition strategy and targets that the company does not currently provide and that would be helpful to investment decision-making. As under the BAIS benchmark approach, the active portfolio
managers are ultimately responsible for voting consistent with their investment mandate and fund objectives.
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Appendix 1: How we fulfil and oversee our active investment stewardship responsibilities
Oversight
The Global Head of BAIS has primary oversight of and
responsibility for the team’s activities, including voting in accordance with the BlackRock Active Investment Stewardship Global Engagement and Voting Guidelines (“the Guidelines”), which require the application of professional
judgment and consideration of each company’s unique circumstances, as well as input from active investors. BAIS is independent from BlackRock Investment Stewardship in our engagement and voting activities, reporting lines, and oversight.
The Active Investment Stewardship Oversight Committee, comprised of senior representatives of the active investment, legal and risk teams, reviews and advises on
amendments to BAIS’ Global Engagement and Voting Guidelines. The Committee also considers developments in corporate governance, related public policy, and market norms and how these might influence BAIS’ policies and practices. The
Committee does not determine voting decisions, which are the responsibility of BAIS and the relevant active equity investors.
In addition, there is a standing
advisory group of senior active investors who counsel BAIS on complex or high-profile votes before a recommendation is finalized and escalated to the portfolio managers with holdings in the company under consideration. This group also formally
reviews any revisions to the Engagement and Voting Guidelines proposed by BAIS as part of its annual review.
BAIS carries out engagement with companies in
collaboration with active investment colleagues, executes proxy votes, and conducts vote operations (including maintaining records of votes cast) in a manner consistent with the Guidelines. BAIS also conducts research on corporate governance issues
and participates in industry discussions to contribute to and keep abreast of important developments in the corporate governance field. BAIS may use third parties for certain of the foregoing activities and performs oversight of those third parties
(see “Use and oversight of third-party vote services providers” below).
Voting guidelines and vote execution
BlackRock votes on proxy issues when our clients authorize us to do so. We carefully consider the voting items submitted to funds and other fiduciary account(s) (Fund or
Funds) for which we have voting authority. BlackRock votes (or refrains from voting) for each Fund for which we have voting authority based on our evaluation of the alignment of the voting items with the long-term economic interests of our clients,
in the exercise of our independent business judgment, and without regard to the relationship of the issuer (or any shareholder proponent or dissident shareholder) to the Fund, the Fund’s affiliates (if any), BlackRock or BlackRock’s
affiliates, or BlackRock employees (see “Conflicts management policies and procedures,” below).
When exercising voting rights, BAIS will normally vote on
specific proxy issues in accordance with the Guidelines, although portfolio managers have the right to vote differently on their holdings if they determine doing so is more aligned with the investment objective and financial interests of clients
invested in the funds they manage.
The Guidelines are not intended to be exhaustive. BAIS applies the Guidelines on a case-by-case basis, in the context of the individual circumstances of each company and the specific issue under review. As such, the Guidelines do not indicate how BAIS will vote in every instance. Rather,
they reflect our view about corporate governance issues generally, and provide insight into how we typically approach issues
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that commonly arise on corporate ballots. The Guidelines are reviewed annually and updated as necessary to reflect changes
in market practices, developments in corporate governance and feedback from companies and clients. In this way, BAIS aims to maintain policies that explain our approach to governance practices most aligned with clients’ long-term financial
interests.
In certain markets, proxy voting involves logistical issues which can affect BAIS’ ability to vote such proxies, as well as the desirability of
voting such proxies. These issues include, but are not limited to: i) untimely notice of shareholder meetings; ii) restrictions on a foreigner’s ability to exercise votes; iii) requirements to vote proxies in person; iv)
“share-blocking” (requirements that investors who exercise their voting rights surrender the right to dispose of their holdings for some specified period in proximity to the shareholder meeting); v) potential difficulties in translating
the proxy; vi) regulatory constraints; and vii) requirements to provide local agents with unrestricted powers of attorney to facilitate voting instructions. We are not supportive of impediments to the exercise of voting rights such as share-blocking
or overly burdensome administrative requirements.
BlackRock votes proxies in these situations on a “best-efforts” basis. In addition, BAIS may determine
that it is generally in the interests of BlackRock’s clients not to vote proxies (or not to vote our full allocation) if the costs (including but not limited to opportunity costs associated with share-blocking constraints) associated with
exercising a vote are expected to outweigh the benefit the client would derive by voting on the proposal.
Voting Choice
BlackRock offers Voting Choice, a program that provides eligible clients with more opportunities to participate in the proxy voting process where legally and
operationally viable.
Voting Choice is currently available for eligible clients invested in certain institutional pooled funds in the U.S., UK, and Canada that use
systematic active equity (SAE) and multi-asset strategies. In addition, institutional clients in separately managed accounts (SMAs) are eligible for BlackRock Voting Choice regardless of their investment strategies.6
As a result, the shares attributed to BlackRock in company share registers may be voted differently depending on
whether our clients have authorized BAIS to vote on their behalf, have authorized BlackRock to vote in accordance with a third-party policy, or have elected to vote shares in accordance with their own policy. Our clients have greater control over
proxy voting because of Voting Choice. BlackRock does not disclose client information, including a client’s selection of proxy policy, without client consent.
Use and oversight of third-party vote services providers
Third-party vote
services providers – or proxy research firms - provide research and recommendations on proxy votes, as well as voting infrastructure. As mentioned previously, BlackRock contracts primarily with the vote services provider ISS and leverages its
online platform to supply research and support voting, record keeping, and reporting processes. We also use Glass Lewis’ research and analysis as an input into our voting process. It is important to note that, although proxy research firms
provide important data and analysis, BAIS does not rely solely on their information or follow their voting recommendations. A
6
With Voting Choice, SMAs have the ability to select from a set of voting policies from third-party proxy advisers the policy that best aligns with their views and preferences. BlackRock can then use its proxy voting infrastructure to cast votes
based on the client’s selected voting policy.
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company’s disclosures, our past engagements and voting, investment colleagues’ insights and our voting guidelines
are important inputs into our voting decisions on behalf of clients.
Given the large universe of actively held companies, BAIS employs the proxy services provider
to streamline the voting process by making voting recommendations based on BAIS’ voting guidelines when the items on a shareholder meeting agenda are routine. Agenda items that are not routine are referred back to BAIS to assess, escalate as
necessary to the relevant portfolio managers and vote. BAIS reviews and can override the recommendations of the vote services provider at any time prior to the vote deadline. Both BAIS and the vote services provider actively monitor securities
filings, research reports, company announcements, and direct communications from companies to ensure awareness of supplemental disclosures and proxy materials that may require a modification of votes.
BAIS closely monitors the third-party vote services providers we contract with to ensure that they are meeting our service level expectations and have effective
policies and procedures in place to manage potential conflicts of interest. Our oversight of service providers includes regular meetings with client service teams, systematic monitoring of vendor operations, as well as annual due diligence meetings
in accordance with BlackRock’s firmwide policies.
Conflicts management policies and procedures
BAIS maintains policies and procedures that seek to prevent undue influence on BlackRock’s proxy voting activity. Such influence might stem from any relationship
between the investee company (or any shareholder proponent or dissident shareholder) and BlackRock, BlackRock’s affiliates, a Fund or a Fund’s affiliates, or BlackRock employees. The following are examples of sources of perceived or
potential conflicts of interest:
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BlackRock clients who may be issuers of securities or proponents of shareholder resolutions |
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BlackRock business partners or third parties who may be issuers of securities or proponents of shareholder resolutions
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BlackRock employees who may sit on the boards of public companies held in Funds managed by BlackRock |
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Significant BlackRock, Inc. investors who may be issuers of securities held in Funds managed by BlackRock
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Securities of BlackRock, Inc. or BlackRock investment funds held in Funds managed by BlackRock |
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BlackRock, Inc. board members who serve as senior executives or directors of public companies held in Funds managed by
BlackRock |
BlackRock has taken certain steps to mitigate perceived or potential conflicts including, but not limited to, the following:
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Adopted the Guidelines which are designed to advance our clients’ long-term economic interests in the companies in
which BlackRock invests on their behalf |
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Established a reporting structure that separates BAIS from employees with sales, vendor management, or business partnership
roles. In addition, BlackRock seeks to ensure that all engagements with corporate issuers, dissident shareholders or shareholder proponents are managed consistently and without regard to BlackRock’s relationship with such parties. Clients or
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business partners are not given special treatment or differentiated access. BAIS prioritizes engagements based on factors including, but not limited to, our need for additional information to
make a voting decision or our view on the likelihood that an engagement could lead to positive outcome(s) over time for the economic value of the company. Within the normal course of business, BAIS may engage directly with BlackRock clients,
business partners and/or third parties, and/or with employees with sales, vendor management, or business partnership roles, in discussions regarding our approach to stewardship, general corporate governance matters, client reporting needs, and/or to
otherwise ensure that proxy-related client service levels are met |
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Determined to engage, in certain instances, an independent third-party voting service provider to make proxy voting
recommendations as a further safeguard to avoid potential conflicts of interest, to satisfy regulatory compliance requirements, or as may be otherwise required by applicable law. In such circumstances, the independent third-party voting service
provider provides BlackRock with recommendations, in accordance with the Guidelines, as to how to vote such proxies. BlackRock uses an independent third-party voting service provider to make proxy voting recommendations for shares of BlackRock, Inc.
and companies affiliated with BlackRock, Inc. BlackRock may also use an independent third-party voting service provider to make proxy voting recommendations for: |
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public companies that include BlackRock employees on their boards of directors |
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public companies of which a BlackRock, Inc. board member serves as a senior executive or a member of the board of
directors |
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public companies that are the subject of certain transactions involving BlackRock Funds |
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public companies that are joint venture partners with BlackRock, and |
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public companies when legal or regulatory requirements compel BlackRock to use an independent third-party voting service
provider |
In selecting an independent third-party voting service provider, we assess several characteristics, including but not limited to:
independence, an ability to analyze proxy issues and make recommendations in the economic interest of our clients in accordance with the Guidelines, reputation for reliability and integrity, and operational capacity to accurately deliver the
assigned recommendations in a timely manner. We may engage more than one independent third-party voting service provider, in part to mitigate potential or perceived conflicts of interest at a single voting service provider. The Active Investment
Stewardship Oversight Committee appoints and reviews the performance of the independent third-party voting service providers, generally on an annual basis.
Securities lending
When so authorized, BlackRock acts as a securities
lending agent on behalf of Funds. Securities lending is a well-regulated practice that contributes to capital market efficiency. It also enables funds to generate additional returns while allowing fund providers to keep fund expenses lower.
With regard to the relationship between securities lending and proxy voting, BlackRock cannot vote shares on loan and may determine to recall them for voting, as guided
by our fiduciary duty as an asset manager to our clients in helping them achieve their investment goals. While this has occurred in a limited number of cases, the decision to recall securities on loan as part of BlackRock’s securities lending
program in order to vote is based on an evaluation of various factors that include, but are not limited to,
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assessing potential securities lending revenue alongside the potential long-term financial value to clients of voting those
securities (based on the information available at the time of recall consideration). BAIS works with active portfolio managers, as well as colleagues in the Securities Lending and Risk and Quantitative Analysis teams, to evaluate the costs and
benefits to clients of recalling shares on loan.
In almost all instances, BlackRock anticipates that the potential long-term financial value to clients of voting
shares would not warrant recalling securities on loan. However, in certain instances, BlackRock may determine, in our independent business judgment as a fiduciary, that the value of voting outweighs the securities lending revenue loss to clients and
would therefore recall shares to be voted in those instances.
Periodically, BlackRock reviews our process for determining whether to recall securities on loan in
order to vote and may modify it as necessary.
Reporting and vote transparency
BAIS is committed to transparency in the stewardship work we do on behalf of clients. We inform clients about our engagement and voting policies and activities through
direct communication and disclosure on our website.
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Want to know more?
blackrock.com/stewardship | ContactActiveStewardship@blackrock.com
The document is provided for information purposes only and is subject to change. Reliance upon this information is at the sole discretion of the reader.
Prepared by BlackRock, Inc.
©2024 BlackRock, Inc. All rights reserved. BLACKROCK is a trademark of BlackRock, Inc., or its subsidiaries in
the United States and elsewhere. All other trademarks are those of their respective owners.
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